How can we test choice consistency without knowing a utility function?
Choosing A when B was affordable reveals that A is at least as good as B.
Follow the cause and effect
Price alternative bundles using each observation’s prices.
Record direct revealed preference when another bundle was affordable.
Find two-way conflicts with WARP or indirect cycles with SARP.
The model you are using
Conditions for this model
Stable preferences, no hidden rationing, optimizing choice and correctly measured prices.
The exam trap
A being more expensive than B under different price vectors does not by itself reveal preference.
Connect the reasoning to the graph
What changes
- Two budget lines show which bundle was affordable and chosen over another.
What stays fixed
Stable preferences, no hidden rationing, optimizing choice and correctly measured prices.
Keep these conditions throughout the comparison; change only what the case above specifies.
What to inspect
Find two-way conflicts with WARP or indirect cycles with SARP.
Compare before and after, and locate the conclusion on the graph.
5 MINUTES · TRANSFER THE IDEA
Can you explain it without the lesson?
Construct three observations that pass pairwise WARP but violate SARP through A→B→C→A.