Paper #952

Title:

Revealed preference and indifferent selection

Author:

Eric Danan

Date:

April 2006

Abstract:

It is shown that preferences can be constructed from observed choice behavior in a way that is robust to indifferent selection (i.e., the agent is indifferent between two alternatives but, nevertheless, is only observed selecting one of them). More precisely, a suggestion by Savage (1954) to reveal indifferent selection by considering small monetary perturbations of alternatives is formalized and generalized to a purely topological framework: references over an arbitrary topological space can be uniquely derived from observed behavior under the assumptions that they are continuous and nonsatiated and that a strictly preferred alternative is always chosen, and indifferent selection is then characterized by discontinuity in choice behavior. Two particular cases are then analyzed: monotonic preferences over a partially ordered set, and preferences representable by a continuous pseudo-utility function.

Keywords:

Revealed preference, indifference, choice behavior, continuity, nonsatiation, monotonicity, pseudo-utility

JEL codes:

D11

Area of Research:

Behavioral and Experimental Economics / Microeconomics

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