Revealed cardinal preference
I prove that as long as we allow the marginal utility for money lamda to vary between purchases (similarly to the budget) then the quasi-linear and the ordinal budget-constrained models rationalize the same data. However, we know that lamda is approximately constant. I provide a simple constructive proof for the necessary and sufficient condition for the constant lambda rationalization, which I argue should replace the Generalized Axiom of Revealed Preference in empirical studies of consumer behavior.
Year of publication: |
2012-01-18
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Institutions: | School of Economics, University of Edinburgh |
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