A Rationalization of the Weak Axiom of Revealed Preference

Victor Aguiar, Per Hjertstrand and Roberto Serrano

No 1321, Working Paper Series from Research Institute of Industrial Economics

Abstract: We offer a rationalization of the weak axiom of revealed preference (WARP) and of the weak generalized axiom of revealed preference (WGARP) for both finite and infinite data sets of consumer choice. We call it maximin rationalization, in which each pairwise choice is associated with a local utility function. We develop its associated revealed-preference theory. We show that preference recoverability and welfare analysis à la Varian (1982) may not be informative enough when the weak axiom holds but when consumers are not utility maximizers. In addition, we show that counterfactual analysis may fail with WGARP/WARP. We clarify the reasons for these failures and provide new informative bounds for the consumer’s true preferences, as well as a new way to perform counterfactual analysis. Finally, by adding the Gorman form and quasilinearity restrictions to the “local” utility functions, we obtain new characterizations of the choices of the Shafer (1974) nontransitive consumer and those choices satisfying the law of demand.

Keywords: Consumer choice; Revealed preference; Maximin rationalization; Nonconvex preferences; Reference-dependent utility; Law of demand (search for similar items in EconPapers)
JEL-codes: C60 D10 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2020-02-26
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp1321.pdf Full text (application/pdf)

Related works:
Working Paper: A Rationalization of the Weak Axiom of Revealed Preference (2022)
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:hhs:iuiwop:1321

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().