1932

Abstract

This article reviews recent developments in revealed preference theory. It discusses the testable implications of theories of choice that are germane to specific economic environments. The focus is on expected utility in risky environments, subjected expected utility and maxmin expected utility in the presence of uncertainty, and exponentially discounted utility for intertemporal choice. The testable implications of these theories for data on choice from classical linear budget sets are described and shown to follow a common thread. The theories all imply an inverse relation between prices and quantities, with different qualifications depending on the functional forms in the theory under consideration.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-082019-110800
2020-08-02
2024-12-09
Loading full text...

Full text loading...

/deliver/fulltext/economics/12/1/annurev-economics-082019-110800.html?itemId=/content/journals/10.1146/annurev-economics-082019-110800&mimeType=html&fmt=ahah

Literature Cited

  1. Adams A, Cherchye L, De Rock B, Verriest E 2014. Consume now or later? Time inconsistency, collective choice, and revealed preference. Am. Econ. Rev. 104:4147–83
    [Google Scholar]
  2. Afriat SN. 1967. The construction of utility functions from expenditure data. Int. Econ. Rev. 8:67–77
    [Google Scholar]
  3. Ahn D, Choi S, Gale D, Kariv S 2014. Estimating ambiguity aversion in a portfolio choice experiment. Quant. Econ. 5:195–223
    [Google Scholar]
  4. Andreoni J, Sprenger C. 2012. Estimating time preferences from convex budgets. Am. Econ. Rev. 102:3333–56
    [Google Scholar]
  5. Blundell RW, Browning M, Crawford IA 2003. Nonparametric Engel curves and revealed preference. Econometrica 71:205–40
    [Google Scholar]
  6. Bossaerts P, Ghirardato P, Guarnaschelli S, Zame WR 2010. Ambiguity in asset markets: theory and experiment. Rev. Financ. Stud. 23:1325–59
    [Google Scholar]
  7. Browning M. 1989. A nonparametric test of the life-cycle rational expectations hypothesis. Int. Econ. Rev. 30:979–92
    [Google Scholar]
  8. Camerer C, Weber M. 1992. Recent developments in modeling preferences: uncertainty and ambiguity. J. Risk Uncertain. 5:325–70
    [Google Scholar]
  9. Carvajal A, Ray I, Snyder S 2004. Equilibrium behavior in markets and games: testable restrictions and identification. J. Math. Econ. 40:1–40
    [Google Scholar]
  10. Carvalho L, Meier S, Wang SW 2016. Poverty and economic decision making: evidence from changes in financial resources at payday. Am. Econ. Rev. 106:260–84
    [Google Scholar]
  11. Chambers CP, Echenique F. 2009. Supermodularity and preferences. J. Econ. Theory 144:1004–14
    [Google Scholar]
  12. Chambers CP, Echenique F. 2016. Revealed Preference Theory Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  13. Chambers CP, Echenique F, Saito K 2016a. Testing theories of financial decision making. PNAS 113:4003–8
    [Google Scholar]
  14. Chambers CP, Echenique F, Shmaya E 2014. The axiomatic structure of empirical content. Am. Econ. Rev. 104:2303–19
    [Google Scholar]
  15. Chambers CP, Echenique F, Shmaya E 2017. General revealed preference theory. Theor. Econ. 12:493–511
    [Google Scholar]
  16. Chambers CP, Liu C, Martinez SK 2016b. A test for risk-averse expected utility. J. Econ. Theory 163:775–85
    [Google Scholar]
  17. Cherchye L, Crawford I, De Rock B, Vermeulen F 2009. The revealed preference approach to demand. Quantifying Consumer Preferences: Estimating Demand Systems D Slottje 247–80 Bingley, UK: Emerald
    [Google Scholar]
  18. Cherchye L, Demuynck T, De Rock B 2018. Normality of demand in a two-goods setting. J. Econ. Theory 173:361–82
    [Google Scholar]
  19. Choi S, Fisman R, Gale D, Kariv S 2007. Consistency and heterogeneity of individual behavior under uncertainty. Am. Econ. Rev. 97:1921–38
    [Google Scholar]
  20. Choi S, Kariv S, Müller W, Silverman D 2014. Who is (more) rational. Am. Econ. Rev. 104:1518–50
    [Google Scholar]
  21. Crawford I. 2010. Habits revealed. Rev. Econ. Stud. 77:1382–402
    [Google Scholar]
  22. Crawford I, De Rock B 2014. Empirical revealed preference. Annu. Rev. Econ. 6:503–24
    [Google Scholar]
  23. Debreu G. 1959. Theory of Value: An Axiomatic Analysis of Economic Equilibrium New Haven, CT: Yale Univ. Press
    [Google Scholar]
  24. Demuynck T, Verriest E. 2013. I'll never forget my first cigarette: a revealed preference analysis of the “habits as durables” model. Int. Econ. Rev. 54:717–38
    [Google Scholar]
  25. Diewert WE. 1973. Afriat and revealed preference theory. Rev. Econ. Stud. 40:419–25
    [Google Scholar]
  26. Diewert WE. 2012. Afriat's theorem and some extensions to choice under uncertainty. Econ. J. 122:305–31
    [Google Scholar]
  27. Dziewulski P. 2018. Revealed time preference. Games Econ. Behav. 112:67–77
    [Google Scholar]
  28. Echenique F, Imai T, Saito K 2018. Approximate expected utility rationalization Work. Pap. 1441, Calif. Inst. Technol Pasadena, CA:
    [Google Scholar]
  29. Echenique F, Imai T, Saito K 2019a. Decision making under uncertainty: an experimental study in market settings Work. Pap., Calif. Inst. Technol Pasadena, CA:
    [Google Scholar]
  30. Echenique F, Imai T, Saito K 2019b. Testable implications of models of intertemporal choice: exponential discounting and its generalizations Work. Pap. 1388, Calif. Inst. Technol Pasadena, CA:
    [Google Scholar]
  31. Echenique F, Saito K. 2015. Savage in the market. Econometrica 83:1467–95
    [Google Scholar]
  32. Ellsberg D. 1961. Risk, ambiguity, and the savage axioms. Q. J. Econ. 75:643–69
    [Google Scholar]
  33. Epstein LG. 2000. Are probabilities used in markets. J. Econ. Theory 91:86–90
    [Google Scholar]
  34. Fishburn PC. 1975. Separation theorems and expected utilities. J. Econ. Theory 11:16–34
    [Google Scholar]
  35. Fishburn PC. 1979. Utility Theory for Decision Making Malabar, FL: Krieger
    [Google Scholar]
  36. Fudenberg D, Iijima R, Strzalecki T 2014. Stochastic choice and revealed perturbed utility Work. Pap., Harvard Univ Cambridge, MA:
    [Google Scholar]
  37. Gilboa I, Schmeidler D. 1989. Maxmin expected utility with non-unique prior. J. Math. Econ. 18:141–53
    [Google Scholar]
  38. Green RC, Srivastava S. 1986. Expected utility maximization and demand behavior. J. Econ. Theory 38:313–23
    [Google Scholar]
  39. Halevy Y, Persitz D, Zrill L 2018. Parametric recoverability of preferences. J. Political Econ. 126:1558–93
    [Google Scholar]
  40. Hansen LP, Sargent TJ. 2008. Robustness Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  41. Hey J, Pace N. 2014. The explanatory and predictive power of non two-stage-probability theories of decision making under ambiguity. J. Risk Uncertain. 49:1–29
    [Google Scholar]
  42. Houthakker H. 1950. Revealed preference and the utility function. Economica 17:159–74
    [Google Scholar]
  43. Kubler F, Selden L, Wei X 2014. Asset demand based tests of expected utility maximization. Am. Econ. Rev. 104:3459–80
    [Google Scholar]
  44. Machina MJ, Schmeidler D. 1992. A more robust definition of subjective probability. Econometrica 60:745–80
    [Google Scholar]
  45. Matzkin RL. 1994. Restrictions of economic theory in nonparametric methods. In Handbook of EconometricsVol. 4ed. RF Engle, DL McFaddenpp. 252358. Amsterdam: Elsevier
    [Google Scholar]
  46. Matzkin RL, Richter MK. 1991. Testing strictly concave rationality. J. Econ. Theory 53:287–303
    [Google Scholar]
  47. Nishimura H, Ok EA, Quah J 2017. A comprehensive approach to revealed preference theory. Am. Econ. Rev. 107:1239–63
    [Google Scholar]
  48. Polisson M. 2018. A lattice test for additive separability IFS Work. Pap. W18-08, Inst. Fiscal Stud London:
    [Google Scholar]
  49. Polisson M, Quah J, Renou L 2017. Revealed preferences over risk and uncertainty Discuss. Pap. 1706, Univ. St. Andrews, St. Andrews, UK:
    [Google Scholar]
  50. Quah J. 2014. A test for weakly separable preferences Discuss. Pap. 708, Univ. Oxford Oxford, UK:
    [Google Scholar]
  51. Rockafellar RT. 1997. Convex Analysis Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  52. Samuelson P. 1938. A note on the pure theory of consumer's behaviour. Economica 5:61–71
    [Google Scholar]
  53. Trautmann ST, van de Kuilen G 2015. Ambiguity attitudes. The Wiley Blackwell Handbook of Judgment and Decision Making G Keren, G Wu 89–116 Chichester, UK: John Wiley & Sons
    [Google Scholar]
  54. Varian HR. 1982. The nonparametric approach to demand analysis. Econometrica 50:945–73
    [Google Scholar]
  55. Varian HR. 1983a. Nonparametric tests of consumer behaviour. Rev. Econ. Stud. 50:99–110
    [Google Scholar]
  56. Varian HR. 1983b. Nonparametric tests of models of investor behavior. J. Financ. Quant. Anal. 18:269–78
    [Google Scholar]
  57. Varian HR. 1988. Estimating risk aversion from Arrow-Debreu portfolio choice. Econometrica 56:973–79
    [Google Scholar]
  58. Varian HR. 2006. Revealed preference. Samuelsonian Economics and the Twenty-First Century M Szenberg, L Ramrattan, AA Gottesman 99–115 Oxford, UK: Oxford Univ. Press
    [Google Scholar]
/content/journals/10.1146/annurev-economics-082019-110800
Loading
/content/journals/10.1146/annurev-economics-082019-110800
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error