Logic of Choice and Economic Theory

Abstract

This book approaches various aspects of economics that have to do with choice, and the opportunity for it, such as individual and social choice, production, optimal programming, and the market. The topics belong mostly to microeconomics, but they also have other connections. The object is to state a view about choice and value and to give an account of the logical apparatus. With this there is a wish to present limited matters fairly completely and unproblematically, and where there is some issue about their nature to consider that also. The book consists of six parts, each containing several chapters. Parts I–IV deal with generalities about choice, individual or social, and representative economic topics. The remaining parts have more concern with straightforwardly mathematical subjects, which have an application or interpretation for economics but need not be exclusively connected there. Chapters often are fairly self‐contained or belong to sequences that can be taken more or less on their own. The topics are in the main fabric of economic theory, and most students encounter them. A preamble at the start of every chapter tells what it is about; from this and possibly some further scanning, the main ideas should be easily gathered by those who might not be concerned with all details. Expository materials and reworkings of published fragments have been joined with unpublished work from past and recent years. In all there is a view about choice and ‘the optimum’ in economics surely acceptable to some and perhaps what they have always thought but undoubtedly not to everyone.

Do rational demand functions differ from irrational ones? Evidence from an induced budget experiment

“…However, a comparison of the full set of demand coefficients indicates significant differences between the two, yielding an observable artefact of the preference hypothesis. Relaxing the goodness-of-fit of the revealed preference test (Afriat, 1987;Varian, 1994) does not alter our findings. …”

“…13 Finally, similar experiments often allow a degree of measurement error by parsing the violations into trivial versus severe ones. One criteria for doing so, Afriat's Critical Cost Efficiency Index (CCEI), measures the smallest endowment adjustment needed to restore consistency (Afriat, 1987;Varian, 1994). Violations exceeding some critical level are deemed severe; those that do not are considered trivial.…”

On Testing the Utility Hypothesis

“…A non‐parametric approach to assessing the ‘goodness of fit’ of data to revealed preference axioms is provided by the partial efficiency approach introduced by Afriat (1972) and further developed in Afriat (1987) and Varian (1993). Consider the conventional revealed preference model in which consumption goods are the only choice variables.…”

“…In Section III, I first discuss the efficiency measures developed by Afriat (1972, 1987) and Varian (1993) as a non‐parametric procedure for measuring the ‘goodness of fit’ of consumer demand data to revealed preference axioms. Then I explain how Varian's efficiency measure can be used in a conservative test procedure that corrects for reporting errors in the data.…”

What Do Revealed Preference Axioms Reveal About Elasticities of Demand?

“…price and income elasticities) has apparently not appeared in the literature." Chavas and Cox's approach is based on two representations of preferences that bound the family of utility functions that rationalize a dataset under GARP (see Afriat, 1987). In an empirical application, they use these two representations to calculate demand responses from 20% changes in either total expenditure or in the prices of individual goods.…”