1 Department of Economics, Faculty of Social Sciences, Københavns Universitet2 Department of Economics, Study Council, Department of Economics, Faculty of Social Sciences, Københavns Universitet3 Newcastle University4 Department of Economics, Study Council, Department of Economics, Faculty of Social Sciences, Københavns Universitet
In the present paper, we are concerned with the behavioural consequences of consumers having nontransitive preference relations. Data sets consist of ﬁnitely many observations of price vectors and consumption bundles. A preference relation rationalizes a data set provided that for every observed consumption bundle, all strictly preferred bundles are more expensive than the observed bundle. Our main result is that data sets can be rationalized by a smooth nontransitive preference relation if and only if prices can normalized such that the law of demand is satisﬁed. Market data sets consist of ﬁnitely many observations of price vectors, lists of individual incomes and aggregate demands. We apply our main result to characterize market data sets consistent with equilibrium behaviour of pure-exchange economies with smooth nontransitive consumers.
Economic Theory, 2013, Vol 54, Issue 3, p. 463-484
Faculty of Social Sciences; Law of demand; Revealed preferences; GARP; SARP