Modern mainstream economics teach us that Marshallian consumer surplus concept can be correctly applied only in the special case of quasilinear preferences (when price of numeraire is normalized to unity), which is never observed in reality. Our paper shows the opposite: we can every time...

An information-theoretic thought experiment is developed to provide a methodology for predicting endowment distributions in the absence of information on agent preferences. The allocation problem is first presented as a stylised knapsack problem. Although this knapsack allocation is intractable,...

Many studies document failures of expected utility's key assumption, the independence axiom. Here, we show that independence can be decomposed into two distinct axioms - betweenness and homotheticity - and that these two axioms are necessary and sufficient for independence. Thus, independence...

We define necessary and sufficient conditions on prices and incomes under which quantity choices can violate SARP (Strong Axiom of Revealed Preference) but not WARP (Weak Axiom of Revealed Preference). As SARP extends WARP by additionally imposing transitivity on the revealed preference...

This paper exhibits a duality between the theory of revealed preference of Afriat and the housing allocation problem of Shapley and Scarf. In particular, it is shown that Afriat’s theorem can be interpreted as a second welfare theorem in the housing problem. Using this duality, the revealed...

We review a nonparametric "revealed preference" methodology for analyzing collective consumption behavior in practical applications. The methodology allows for accounting for externalities, public consumption, and the use of assignable quantity information in the consumption analysis. This...

This paper exhibits a duality between the theory of revealed preference of Afriat and the housing allocation problem of Shapley and Scarf. In particular, it is shown that Afriat’s theorem can be interpreted as a second welfare theorem in the housing problem. Using this duality, the revealed...

Many studies document failures of expected utility’s key assumption, the independence axiom. Here, we show that independence can be decomposed into two distinct axioms – betweenness and homotheticity – and that these two axioms are necessary and sufficient for independence. Thus,...

This paper develops a model of choice that embeds some psychological aspects affecting decision maker's behaviour. In the model, the decision maker attaches an unobservable psychological index -representing, e.g., the level of perceived availability or the level of salience- to each alternative...

Afriat proved the equivalence of a variant 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...