The World According to GARP* : Non-parametric Tests of Demand Theory and Rational Behavior

The purpose of this paper is twofold. We first point out that violation of rationality axioms (SARP, GARP, WARP) do not necessarily lead to a non-rational behavior. Second, our tests of axioms SARP, GARP and WARP over a Polish panel data (1987-90) show that over the 3630 households only 240 violate the three axioms. However these 240 violations are not caused by the non-respect of demand theory axioms but by the changing of preferences over the period. A logistic regression confirms the robustness of the test since the more the real expenditure increases in absolute value, the more the probability of violating the axioms increases (the respect of the axioms by the 3390 households is not due to an increase of the real expenditure). Moreover, changing in the composition of the family structure increases the probability of being inconsistent. It seems therefore that the 240 apparent violations are due to the appearance of new constraints, which increase the shadow prices of the goods. In order to explain these 240 households' preference changes, we build an econometric model of prices including an observed monetary component and an unobserved non-monetary component expressing the constraints faced by the agent. The estimation of this econometric model shows that the agents who apparently violate the axioms have these complete price changes superior to those of the agents who respect the axioms. Thus the agents who apparently violate the axioms faced during the period a change of their non-monetary resources and the appearance of new constraints.Rationality, GARP, Non-parametric tests, Shadow prices.

The Axiomatic Structure of Empirical Content

In this paper, we provide a formal framework for studying the empirical content of a given theory. We define the falsifiable closure of a theory to be the least weakening of the theory that makes only falsifiable claims. The falsifiable closure is our notion of empirical content. We prove that the empirical content of a theory can be exactly captured by a certain kind of axiomatization, one that uses axioms which are universal negations of conjunctions of atomic formulas. The falsifiable closure operator has the structure of a topological closure, which has implications, for example, for the behavior of joint vis a vis single hypotheses. The ideas here are useful for understanding theories whose empirical content is well-understood (for example, we apply our framework to revealed preference theory, and Afriat's theorem), but they can also be applied to theories with no known axiomatization. We present an application to the theory of multiple selves, with a fixed finite set of selves and where selves are aggregated according to a neutral rule satisfying independence of irrelevant alternatives. We show that multiple selves theories are fully falsifiable, in the sense that they are equivalent to their empirical content

GARP violation, Economic Environment Distortions and Shadow Prices : Evidence from Household Expenditure Panel Data

This paper contributes to the discussion of the compatibility of consumers' behavior in "real" life with GARP. Within expenditure panel data we observe a relatively low rate of violation (240 out of 3630 households). We show that these violations do not imply an "irrational" behavior of the agents, but can be attributed to a change in the agents' choice conditions during a period of time, which includes a shift from a centrally planned towards a market oriented economy.GARP, shadow prices.

THE EFFECT OF FOOD-SAFETY RELATED INFORMATION ON CONSUMERS' PREFERENCE: THE CASE OF BSE OUTBREAK IN JAPAN

This study analyzes consumers' responses to food-safety related information by evaluating if Japanese consumers have undergone a structural change in their preferences for meat due to the BSE outbreak in the country. The axiom of revealed preference is utilized to test the stability of preference in Japanese meat consumption. The matrix of weak form of revealed preference (WARP) is partitioned and Kruskal-Wallis statistics are derived to evaluate whether the switches of preference are transitory or due to a structural change. Empirical results show that Japanese meat demand has undergone a structural change, synchronized with the BSE outbreak in Japan in mid-September 2001.Food Consumption/Nutrition/Food Safety,