Adam Smith Business School

Professor Roberto Serrano, Brown University

"A Rationalization of the Weak Axiom of Revealed Preference"
Tuesday, 17 October. 4 pm
Room 386B, Adam Smith Business School Building

Abstract

We offer a rationalization of the weak axiom of revealed preference (WARP) and of the weak generalized axiom of revealed preference (WGARP) for both finite and infinite data sets of consumer choice. We call it maximin rationalization, in which each pairwise choice is associated with a local utility function. We develop its associated revealed-preference theory. We show that preference recoverability and welfare analysis à la Varian (1982) may not be informative enough when the weak axiom holds but when consumers are not utility maximizers. In addition, we show that counterfactual analysis may fail with WGARP/WARP. We clarify the reasons for these failures and provide new informative bounds for the consumer’s true preferences, as well as a new way to perform counterfactual analysis. Finally, by adding the Gorman form and quasilinearity restrictions to the “local” utility functions, we obtain new characterizations of the choices of the Shafer (1974) nontransitive consumer and those choices satisfying the law of demand.

Bio

Roberto Serrano is the Harrison S. Kravis University Professor of Economics at Brown University in Providence, Rhode Island. He has held visiting appointments at IMDEA Social Sciences in Madrid, the Center for Rationality of the Hebrew University of Jerusalem, Universitat Pompeu Fabra of Barcelona, the Institute for Advanced Study in Princeton, Universidad Carlos III and CEMFI in Madrid, and Harvard University. His fields of interest are microeconomic theory and game theory. He has made contributions to several areas, including implementation theory and mechanism design, bargaining theory, the economics of risk, uncertainty and information, and the theory of general economic equilibrium.

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First published: 11 September 2023