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arXiv · 1906.00296

A Rationalization of the Weak Axiom of Revealed Preference

Victor H. Aguiar·Per Hjertstrand·Roberto Serrano·Özgür Evren
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Abstract

Given a finite collection of choices over budgets, rational consumer behavior is identified with the generalized axiom of revealed preference (GARP). As an alternative, the weak generalized axiom of revealed preference--WGARP--only rules out strict choice cycles of size two. While GARP failures are routinely found in both the field and the lab, the same is not true for WGARP. We study how WGARP-consistent choices can be rationalized as a form of optimal behavior. Our main result is an analogue of the celebrated Afriat's theorem, but for WGARP. We show that choices are consistent with WGARP if and only if they can be rationalized by an asymmetric and strictly monotonic preference function. Equivalently, they can be rationalized by a preference function that admits a coalitional multi-utility (CMU) representation with a coherence restriction. A coherent CMU representation aggregates multiple utility functions --selves-- within the individual, so that binary preference reversals do not occur, while longer preference cycles remain possible. As a result, the class of incomplete, intransitive, and nonconvex preferences compatible with WGARP is studied.

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Victor H. Aguiar, Per Hjertstrand, Roberto Serrano, Özgür Evren. 2019-06-01. A Rationalization of the Weak Axiom of Revealed Preference. https://arxiv.org/abs/1906.00296

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