The concave nontransitive consumer (Q5959047)

The author investigates the problem of characterization of rationalizability of nontransitive preferences of a consumer. Let the preference of a consumer be described by a complete binary relation \(R\) on the set \({\mathbb{R}}^{l}_{+}\) of all possible consumption bundles. For \(x,y\in {\mathbb{R}}^{l}_{+}\), \(xRy\) is interpreted as \(x\) is weakly preferred to \(y\), and we suppose that \(R\) is not necessarily transitive. A function \(r: {\mathbb{R}}^{l}_{+}\times {\mathbb{R}}^{l}_{+}\to{\mathbb{R}}\) is a numerical representation of the preference \(R\) if for all \(x,y\in{ \mathbb{R}}^{l}_{+}\): \(xRy \leftrightarrow r(x,y)\geq 0\), \(r(x,y)=-r(y,x)\). A representation \(r\) is called concave-convex if for every \(x\in \mathbb{R}^{l}_{+}\) the function \(r(\cdot,x)\) is concave; nonsatiated if for every \(x\in \mathbb{R}^{l}_{+}\) there exists \(y\in \mathbb{R}^{l}_{+}\) such that \(r(y,x)>0\); monotone if for all \(x,y,z\in \mathbb{R}^{l}_{+}\): \(x>y\) implies \(r(x,z)>r(y,z)\). Assume that a consumer demands the commodity bundle \(x_{i}\) at the price vector \(p_{i}\). A preference representation \(r\) rationalize the set of observations \(\{(p_{i},x_{i})\mid i=1,\ldots,n\}\) if for all \(i\) and all \(x\in \mathbb{R}^{l}_{+}\) \(p_{i}x_{i}\geq p_{i}x\) implies \(r(x_{i},x)\geq 0\). The main result of the article is the following. Let \(\{(p_{i},x_{i})\mid i=1,\ldots,n\}\) be a finite set of demand observations. Then the following conditions are equivalent: 1) There exists a nonsatiated, concave-convex representation that rationalizes the observation. 2) For any set of real numbers \(\lambda_{ij}\geq 0\;(1\leq i,j\leq n)\) such that \(\lambda_{ij}=\lambda_{ji}\), the inequalities \(\sum_{j=1}^{n}\lambda_{ij}p_{i}(x_{j}-x_{i})\leq 0\) for \(i=1,\ldots,n\) imply the equalities \(\sum_{j=1}^{n}\lambda_{ij}p_{i}(x_{j}-x_{i})=0\) for \(i=1,\ldots,n\). 3) There exist real numbers \(\pi_{i}>0\;(1\leq i\leq n)\) such that for all \(i,j\in\{1,\ldots,n\}\): \((\pi_{i}p_{i}-\pi_{j}p_{j})\leq 0\). 4) There exist real numbers \(\rho_{ij}\) \((1\leq i,j\leq n)\) with \(\rho_{ji}=-\rho_{ij}\) and \(\pi_{i}>0\) \((1\leq i\leq n)\) such that for all \(i,j\in\{1,\ldots,n\}\): \(\rho_{ij}\leq \pi_{j}p_{j}(x_{i}-x_{j})\). 5) There exists a continuous, monotone, concave-convex representation that rationalizes the observations.