Essays on revealed preference

Abstract

This thesis contributes to the theory of consumer’s behavior. It is devided into three parts:The first part gives a brief history of the theoretical developments relevant to the two consecutive parts and provides a detailed outline.The second part contains theoretical contributions. Specifically, (i) it provides a unifying proof technique to show that preference cycles can be of arbitrary length formore than two but not for two commodities. An immediate corollary is that the Weak Axiom of Revealed Preference only implies the Strong Axiom for two commodities, (ii) it provides a simple graphical way to construct preference cycles, (iii) it shows that for two dimensional commodity spaces any homothetic utility function that rationalizes each pair of observations in a set of consumption data also rationalizes the entire set of observations, (iv) it explorers rationalizability issues for finite sets of observations of stochastic choice and gives two rationalizability theorems.The third part provides three practical contributions. Specfically, (i) it explorers some possible applications of a lemma used in the chapter on homothetic preferences in two dimensions, (ii) it suggests a procedure to decide whether or not to treat a consumer who violates the Generalized Axiom of Revealed Preference as 'close enough' to utility maximization, (iii) it provides a new measure for the severity of a violation of utility maximization based on the extent to which the upper bound of the indifference map intersects the budget set.