HOW REVEALING IS REVEALED PREFERENCE? | Zendy

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HOW REVEALING IS REVEALED PREFERENCE?

Author(s) -

Blundell Richard

Publication year - 2005

Publication title -

journal of the european economic association

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 7.792

H-Index - 93

eISSN - 1542-4774

pISSN - 1542-4766

DOI - 10.1162/jeea.2005.3.2-3.211

Subject(s) - irrationality , economics , revealed preference , preference , rationality , microeconomics , preference theory , welfare , positive economics , mathematical economics , epistemology , market economy , philosophy

This lecture address the following two key criticisms of the empirical application of revealed preference theory: When the RP conditions do not reject, they do not provide precise predictions; and when they do reject, they do not help characterize the nature of irrationality or the degree/direction of changing tastes. Recent developments in the application of RP theory are shown to have rendered these criticisms unfounded. A powerful test of rationality is available that also provides a natural characterization of changing tastes. Tight bounds on demand responses and on the welfare costs of relative price and tax changes are also available and are shown to work well in practice. (JEL: D11, D12, C14)

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