Revealed Preference in a Discrete Consumption Space

Matthew Polisson*, John K.-H. Quah

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

10 Citations (Scopus)

Abstract

We show that an agent maximizing some utility function on a discrete (as opposed to continuous) consumption space will obey the generalized axiom of revealed preference (GARP), so long as the agent obeys cost efficiency. Cost efficiency will hold if there is some good, outside the set of goods being studied by the modeler, that can be consumed by the agent in continuous quantities. An application of Afriat's Theorem then guarantees that there is a strictly increasing utility function on the discrete consumption space that rationalizes price and demand observations.

Original languageEnglish
Pages (from-to)28-34
Number of pages7
JournalAmerican Economic Journal: Microeconomics
Volume5
Issue number1
DOIs
Publication statusPublished - 1 Feb 2013

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