Coursenotes_ECON301

W when it does the s elements in b are the a

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Unformatted text preview: et ion faces s. Anot ther possibl choice st le tructure is ( C2 ()), w (B, where the c choice rule C2() is: C2({x y}) = {x} and C2({x, y z}) = {x, y In this c x, a y, y}. case, we se that x is c ee chosen when never the decision ma aker faces b budget {x, y but they may choos x or y y}, se when they face the budget set {x, y, z n t z}. oice structu ures to mod individua consume behavior, we need to del al er , When using cho impo some re ose easonable r restrictions on the indi ividual's choice behav vior. A key assu umption, called the wea axiom of revealed p ak preference or "WARP" for short, " reflec the expectation tha a person choices w be obse cts at n's will erved to show a certa amount of consiste ain ency. 339 For e example, if an individu chooses x when fac with a c ual s ced choice betw ween x and d y it w would be qu surprising if we observed him uite m/her choos sing y when faced with h a cho oice betwee x, y, and a third alte en d ernative z. The point is that the c choice of x when facing the alternative {x, y} sug n e es ggests a tendency to c choose x ov y that ver we should see when the in w ndividual is faced with the alterna atives {x, y, z}. THE WEAK AX XIOM OF RE EVEALED PREFEREN NCE (WAR RP) DEFINITION #1 1: The choice str ructure (B, C ()) satis sfies the w weak axiom of reveale m ed prefe erence if th followin property holds: he ng y r have x C C(B), then f any B' B with x, for , If for some B B with x, y B we h y B and y C(B'), we must also have x C B' C(B'). Translation: the weak axio says tha if x is eve chosen w e om at er when y is av vailable, then there can be no budg set containing both x and y wh b get h here y is ch hosen and x is no ot. should notic that the assumption that indivi ce n idual choice behavior satisfies the e We s weak axiom imp k plies consis stency of ch hoices... If C({ y}) = {x}, then the w {x, weak axiom says that w cannot have C({x, y, z}) = {y}. m we . can he iom in a sim mpler way b defining a revealed preference by e We c state th weak axi relation fr rom the obs served choice behavio in C(). or DEFINITION #2 2: Give the choi structu (B, C () the revea en ice ure )) aled prefer rence relat tion is de efi...
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This note was uploaded on 05/25/2010 for the course ECON 301 taught by Professor Sning during the Spring '10 term at University of Warsaw.

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