Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149499
Authors: 
Heufer, Jan
van Bruggen, Paul
Year of Publication: 
2016
Series/Report no.: 
Tinbergen Institute Discussion Paper 16-095/I
Abstract: 
Varian (1988) showed that the utility maximization hypothesis cannot be falsified when only a subset of goods is observed. We show that this result does not hold under the assumptions that unobserved prices and expenditures remain constant. These assumptions are naturally satisfied in laboratory settings where the world outside the lab remains unchanged during the experiment. Hence for so-called induced budget experiments the Generalized Axiom of Revealed Preference is a necessary and sufficient condition for utility maximization in general, not just in the lab. Lab experiments are therefore a valid tool to put the utility maximization hypothesis to the test.
Subjects: 
Afriat's Theorem
Experimental Economics
GARP
Revealed Preference
Utility Maximization
JEL: 
C14
C91
D11
D12
Document Type: 
Working Paper

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