Revealed Preference Analysis Test the behavioral hyi pothesis that a consumer chooses the most preferred bundle from those available Discover the consumer's preference relation 北京大学经济学院 Slide
北京大学经济学院 Slide6 Revealed Preference Analysis – Test the behavioral hypothesis that a consumer chooses the most preferred bundle from those available. – Discover the consumer’s preference relation
Assumptions on Preferences Preferences do not change while the choice data are gathered are strictly convex are monotonic Rational consumer always maximizes his utility Together, convexity and monotonicity imply that the most preferred affordable bundle Is unique. 北京大学经济学院 Slide7
北京大学经济学院 Slide7 Assumptions on Preferences • Preferences – do not change while the choice data are gathered. – are strictly convex. – are monotonic. – Rational consumer always maximizes his utility. • Together, convexity and monotonicity imply that the most preferred affordable bundle is unique
Assumptions on Preferences X2 If preferences are convex and monotonic(i.e. well-behaved) then the most preferred affordable bundle is unique. X1 北京大学经济学院 Slide
北京大学经济学院 Slide8 Assumptions on Preferences x2 x1 x1 * x2 * If preferences are convex and monotonic (i.e. well-behaved) then the most preferred affordable bundle is unique
Direct Preference Revelation (直接显示性偏好) Suppose that the bundle x is chosen when the bundle y is affordable hen x* is revealed directly as preferred to y (otherwise y would have been chosen 北京大学经济学院 Slide
北京大学经济学院 Slide9 Direct Preference Revelation （直接显示性偏好） • Suppose that the bundle x* is chosen when the bundle y is affordable. • Then x* is revealed directly as preferred to y (otherwise y would have been chosen)
Direct Preference revelation 2 The chosen bundle x is revealed directly as preferred X to the bundles y and z Z 北京大学经济学院 Slidell
北京大学经济学院 Slide10 Direct Preference Revelation x2 x1 x * y The chosen bundle x* is revealed directly as preferred to the bundles y and z. z