Afriat's Theorem for General Budget Sets

21 Pages Posted: 27 Apr 2006

See all articles by Francoise Forges

Francoise Forges

Université Paris Dauphine - CEREMADE; CESifo (Center for Economic Studies and Ifo Institute)

Enrico Minelli

University of Brescia - Department of Economics

Date Written: April 2006

Abstract

Afriat (1967) showed the equivalence of the strong axiom of revealed preference and the existence of a solution to a set of linear inequalities. From this solution he constructed a utility function rationalizing the choices of a competitive consumer. We extend Afriat's theorem to a class of nonlinear budget sets. We obtain testable implications of rational behavior for a wide class of economic environments, and a constructive method to derive individual preferences from observed choices. In an application to market games, we identify a set of observable restrictions characterizing Nash equilibrium outcomes.

Keywords: GARP, rational choice, revealed preferences, market games, SARP, WARP

JEL Classification: D11, D43, C72

Suggested Citation

Forges, Francoise and Minelli, Enrico, Afriat's Theorem for General Budget Sets (April 2006). CESifo Working Paper Series No. 1703, Available at SSRN: https://ssrn.com/abstract=899252 or http://dx.doi.org/10.2139/ssrn.899252

Francoise Forges (Contact Author)

Université Paris Dauphine - CEREMADE ( email )

Place du Marechal de Lattre de Tassigny
Paris Cedex 16, 75775
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Enrico Minelli

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

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