The World According to GARP*: Non-parametric Tests of Demand Theory and Rational Behavior

Marc-Arthur Diaye (marc-arthur.diaye@univ-paris1.fr), François Gardes and Christophe Starzec

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: The purpose of this paper is twofold. We first point out that violation of rationality axioms (SARP, GARP, WARP) do not necessarily lead to a non-rational behavior. Second, our tests of axioms SARP, GARP and WARP over a Polish panel data (1987-90) show that over the 3630 households only 240 violate the three axioms. However these 240 violations are not caused by the non-respect of demand theory axioms but by the changing of preferences over the period. A logistic regression confirms the robustness of the test since the more the real expenditure increases in absolute value, the more the probability of violating the axioms increases (the respect of the axioms by the 3390 households is not due to an increase of the real expenditure). Moreover, changing in the composition of the family structure increases the probability of being inconsistent. It seems therefore that the 240 apparent violations are due to the appearance of new constraints, which increase the shadow prices of the goods. In order to explain these 240 households' preference changes, we build an econometric model of prices including an observed monetary component and an unobserved non-monetary component expressing the constraints faced by the agent. The estimation of this econometric model shows that the agents who apparently violate the axioms have these complete price changes superior to those of the agents who respect the axioms. Thus the agents who apparently violate the axioms faced during the period a change of their non-monetary resources and the appearance of new constraints.

Keywords: Rationality; GARP; Non-parametric tests; Shadow prices.; Shadow prices (search for similar items in EconPapers)
Date: 2008-04-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00268829
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://shs.hal.science/halshs-00268829/document (application/pdf)

Related works:
Working Paper: The World according to Garp: A non-parametric test of demand theory and rational behavior (2008)
Working Paper: The World According to GARP: Non-parametric Tests of Demand Theory and Rational Behavior (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00268829

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD (hal@ccsd.cnrs.fr).