Revealed Preference Theory Revisited

Host Institution:

RMIT University

Title of Seminar:

Revealed Preference Theory Revisited

Speaker's Name:

Prof. Andrew Eberhard

Speaker's Institution:

RMIT University, School of Mathematical and Geospatial Sciences

Time and Date:

Friday 27 April 2012, 3:30pm (AEST)

Seminar Abstract:

When modelling consumer demand in economics often an optimisation problem which maximises some utility for a given budget is used. In reality we are not a-priori given a utility but have only access to a finite selection of demand data that assigns a consumers choice of a commodity bundle at a given price. The problem of fitting a utility function to a finite data set which yields the same preference structure was first solved by Afriat and recently there has been proposed other approaches. We discuss some numerical algorithms and techniques to perform these apoproximations and discuss which can accommodate deviations from the standard model of consistent consumer preference, and what these deviations might signify. We will mention some recent extensions that try to accomodate critiques of the standard model. In principle one might ask the philosophical question as to whether such methods approximate some "true" underlying utility in a limiting sense. This is known as the "Problem of revealed Preference" and has a long history as well as being the subject of recent debates on the validity of certain axiomatic constructs. Accepting for now the status quo, this problem can be addressed via constructive approximations. This requires the use of some quite modern mathematical techniques which show that a rationalisation of the demand relation may be achieved via a utility that is almost everywhere unique, modulo a rescaling.

Seminar Convenor:

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