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On the rationalizability of observed consumers’ choices when preferences depend on budget sets: comment

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  • Robert Frank
  • Matthew Nagler

Abstract

In a recent article, Bilancini (J Econ 102:275–286, 2011 ) demonstrates that assuming either price-dependent preferences or preferences that depend on the choices of other individuals can render the theory of revealed preference effectively unusable. Some readers might be tempted to infer that economists had better avoid such assumptions. In this note, we argue against that conclusion in favor of a less categorical and more pragmatic approach. In several domains, we identify fundamental weaknesses in revealed preference theory and argue that in those domains, nontraditional assumptions about preferences significantly enhance our ability to explain and predict behavior. Copyright Springer-Verlag Wien 2013

Suggested Citation

  • Robert Frank & Matthew Nagler, 2013. "On the rationalizability of observed consumers’ choices when preferences depend on budget sets: comment," Journal of Economics, Springer, vol. 110(2), pages 187-198, October.
    • Handle: RePEc:kap:jeczfn:v:110:y:2013:i:2:p:187-198
    DOI: 10.1007/s00712-012-0313-5
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    References listed on IDEAS

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    1. Pollak, Robert A, 1977. "Price Dependent Preferences," American Economic Review, American Economic Association, vol. 67(2), pages 64-75, March.
    2. B. Douglas Bernheim, 2009. "Behavioral Welfare Economics," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 267-319, 04-05.
    3. Basmann, Robert L & Molina, David J & Slottje, Daniel J, 1988. "A Note on Measuring Veblen's Theory of Conspicuous Consumption," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 531-535, August.
    4. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    5. Pollak, Robert A, 1978. "Endogenous Tastes in Demand and Welfare Analysis," American Economic Review, American Economic Association, vol. 68(2), pages 374-379, May.
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    9. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 51-104.
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    16. Ennio Bilancini, 2011. "On the rationalizability of observed consumers’ choices when preferences depend on budget sets and (potentially) on anything else," Journal of Economics, Springer, vol. 102(3), pages 275-286, April.
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    More about this item

    Keywords

    Revealed preference theory; Interdependent preferences; Relative position; Price-dependent preferences; B40; D11;
    All these keywords.

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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