Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240464 
Year of Publication: 
2020
Series/Report no.: 
IFN Working Paper No. 1321
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
We offer a rationalization of the weak axiom of revealed preference (WARP) and of the weak generalized axiom of revealed preference (WGARP) for both finite and infinite data sets of consumer choice. We call it maximin rationalization, in which each pairwise choice is associated with a local utility function. We develop its associated revealed-preference theory. We show that preference recoverability and welfare analysis à la Varian (1982) may not be informative enough when the weak axiom holds but when consumers are not utility maximizers. In addition, we show that counterfactual analysis may fail with WGARP/WARP. We clarify the reasons for these failures and provide new informative bounds for the consumer's true preferences, as well as a new way to perform counterfactual analysis. Finally, by adding the Gorman form and quasilinearity restrictions to the "local" utility functions, we obtain new characterizations of the choices of the Shafer (1974) nontransitive consumer and those choices satisfying the law of demand.
Subjects: 
Consumer choice
Revealed preference
Maximin rationalization
Nonconvex preferences
Reference-dependent utility
Law of demand
JEL: 
C60
D10
Document Type: 
Working Paper

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