Stochastic revealed preference and rationalizability |
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Authors: | Jan Heufer |
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Institution: | (1) Department of Economics, University of Warwick, Coventry, CV4 7AL, UK |
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Abstract: | This article explores rationalizability issues for finite sets of observations of stochastic choice in the framework introduced
by Bandyopadhyay et al. (Journal of Economic Theory, 84(1), 95–110, 1999). It is argued that a useful approach is to consider indirect preferences on budgets instead of direct preferences on commodity
bundles. A new rationalizability condition for stochastic choices, “rationalizable in terms of stochastic orderings on the
normalized price space” (rsop), is defined. rsop is satisfied if and only if there exists a solution to a linear feasibility problem. The existence of a solution also implies
rationalizability in terms of stochastic orderings on the commodity space. Furthermore it is shown that the problem of finding
sufficiency conditions for binary choice probabilities to be rationalizable bears similarities to the problem considered here. |
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Keywords: | |
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