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American Economic Journal: Microeconomics: Vol. 5 No. 1 (February 2013)

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Revealed Preference in a Discrete Consumption Space

Article Citation

Polisson, Matthew, and John K.-H. Quah. 2013. "Revealed Preference in a Discrete Consumption Space." American Economic Journal: Microeconomics, 5(1): 28-34.

DOI: 10.1257/mic.5.1.28

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. (JEL D11)

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Authors

Polisson, Matthew (U Leicester and IFS, London)
Quah, John K.-H. (U Oxford)

JEL Classifications

D11: Consumer Economics: Theory

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