Ch7_class_09

Ch7_class_09 - Chapter Seven Revealed Preference Revealed...

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Unformatted text preview: Chapter Seven Revealed Preference Revealed Preference Analysis ◆ Suppose we observe the consumption choices that a consumer makes for different budgets. This reveals information about the consumer’s preferences. We can use this information to ... Revealed Preference Analysis – Test the behavioral hypothesis that a consumer chooses the most preferred bundle from those affordable. – Discover the consumer’s preference relation. Assumptions on Preferences ◆ Preferences – do not change while the choice data are gathered. – are strictly convex. – are monotonic. ◆ Together, convexity and monotonicity imply that the most preferred affordable bundle is unique. Assumptions on Preferences x 2 x 1 x 1 * x 2 * If preferences are convex and monotonic ( i.e . well-behaved) then the most preferred affordable bundle is unique. Direct Preference Revelation ◆ Suppose that the bundle x is chosen when the bundle y is affordable....
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This note was uploaded on 09/14/2009 for the course ECON 100A taught by Professor Babcock during the Summer '07 term at UCSB.

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Ch7_class_09 - Chapter Seven Revealed Preference Revealed...

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