Cahiers du CEREMADE

Unité Mixte de Recherche du C.N.R.S. N°7534

Abstract : Afriat (1967) showed the equivalence of the strong axiom of revealed preference and the existence of a solution to a set of linear inequalities. From this solution he constructed a utility function rationalizing the choices of a competitive consumer. We extend Afriat's theorem to a class of nonlinear budget sets. We thereby obtain testable implications of rational behavior for a wide class of economic environments, and a constructive method to derive individual preferences from observed choices. In an application to market games, we identify a set of observable restrictions characterizing Nash equilibrium outcomes.

Afriat's theorem for general budget sets

FORGES Francoise, MINELLI Enrico

2006-25

31-03-2006

http://www.ceremade.dauphine.fr/preprint/CMD/2006-25.pdf

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