An algebraic approach to revealed preference (Q6107376)

In this paper, an algebraic approach to revealed preference is developed. In the algebraic framework set, a theory about preferences is defined as a collection of functions which impose desired properties. Endowing this collection of functions with a composition operator, the theory can be considered as an algebra. In particular, properties of sets of theories which satisfy the group structure are studied. For such theories, a revealed preference axiom provides a criterion for an observed data set to be generated by a preference relation consistent with the theory. This algebraic axiom subsumes the classical axioms of revealed preferences including those for transitive, homothetic and quasilinear preferences, as well as preferences satisfying independence. Two versions of the axiom, weak and strong, are employed to study transitivity. The weak algebraic preference axiom corresponds to the case in which the underlying preference relation does not have to be transitive, as it does not account for indirect revealed preference relation. The strong algebraic axiom takes into account indirect preference revelation and corresponds to the case of transitive preferences. As far as completeness is concerned, it is established that, unless the underlying preference relation is required to be transitive, a data set can be generated by a preference relation consistent with an algebraic theory if and only if it can be generated by a complete preference relation consistent with an algebraic theory. If the underlying preference relation is required to be transitive, extra assumptions about the structure of the theory are needed to guarantee completeness.