A Theory of Revealed Indirect Preference

45 Pages Posted: 17 Mar 2021

See all articles by Gaoji Hu

Gaoji Hu

Shanghai University of Finance and Economics - School of Economics

Jiangtao Li

Singapore Management University

John Quah

Johns Hopkins University

Rui Tang

Princeton University - Department of Economics

Date Written: January 30, 2021

Abstract

A preference over menus is said to be an indirect preference if it is induced by a preference over the objects that make up those menus, i.e., a menu A is ranked over B whenever A contains an object that is preferred to every object in B. The basic question we address in this paper is the following: suppose an observer has partial information of an agent’s ranking over certain menus; what necessary and sufficient conditions on those rankings guarantee the existence of a preference over objects that induces the observed menu rankings? Our basic result has a wide variety of applications. (1) It gives a characterization of rankings over prices that could be extended to a bona fide indirect utility function. (2) It leads to a generalization of Afriat’s (1967) theorem that allows for imperfectly observed choices. (3) It could be used to characterize observations that are consistent with a multiple preferences model. (4) It leads to a characterization of a model of choice generated by minimax regret.

Suggested Citation

Hu, Gaoji and Li, Jiangtao and Quah, John and Tang, Rui, A Theory of Revealed Indirect Preference (January 30, 2021). Available at SSRN: https://ssrn.com/abstract=3776049 or http://dx.doi.org/10.2139/ssrn.3776049

Gaoji Hu

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

Jiangtao Li (Contact Author)

Singapore Management University ( email )

1 Arts Link, AS2 #06-02
Singapore, Singapore 178903
Singapore

John Quah

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Rui Tang

Princeton University - Department of Economics ( email )

Princeton, NJ 08544
United States

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