Samuelson's Approach to Revealed Preference Theory: Some Recent Advances

27 Pages Posted: 30 Dec 2019

See all articles by Thomas Demuynck

Thomas Demuynck

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Per Hjertstrand

Research Institute of Industrial Economics (IFN)

Date Written: April 23, 2019

Abstract

Since Paul Samuelson introduced the theory of revealed preference, it has become one of the most important concepts in economics. This chapter surveys some recent contributions in the revealed preference literature. We depart from Afriat's theorem, which provides the conditions for a data set to be consistent with the utility maximization hypothesis. We provide and motivate a new condition, which we call the Varian inequalities. The advantage of the Varian inequalities is that they can be formulated as a set of mixed integer linear inequalities, which are linear in the quantity and price data. We show how the Varian inequalities can be used to derive revealed preference tests for weak separability, and show how it can be used to formulate tests of the collective household model. Finally, we discuss measurement errors in the observed data and measures of goodness-of-fit, power and predictive success.

Keywords: Afriat's theorem; Collective household model; GARP; Mixed integer linear programing; Revealed preference; Varian inequalities; Weak separability

JEL Classification: C60; C63; D01; D11

Suggested Citation

Demuynck, Thomas and Hjertstrand, Per, Samuelson's Approach to Revealed Preference Theory: Some Recent Advances (April 23, 2019). IFN Working Paper No. 1274, Available at SSRN: https://ssrn.com/abstract=3500537 or http://dx.doi.org/10.2139/ssrn.3500537

Thomas Demuynck

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

Per Hjertstrand (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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