Iranian Journal of Economic Research

Non-parametric Test of Revealed Preference for Rational Behavior of Consumers: Urban Households

Authors

Mohammad Ali Dehghan Dehnavi 1
Nowruz Kohzadi 2
Sadegh Khalilian 3

1 M.A. in Agricaltural Economics, Tarbiyat Modarres University, Tehran, Iran

2 Managing Director of Export Development Bank, Tehran, Iran

3 Assistant Professor in Agricultural Economics, Tarbiyat Modarres University, Tehran, Iran

Abstract
Non-parametric test of revealed preference identifies consumers' preferences by comparing their choices in different times. Unlike the parametric tests, non-parametric test means that no parameter is estimated and no functional form is imposed on the utility and/or demand function. If a set of consumption data satisfies generalized axiom of revealed preference (GARP) then there exists a non-satiated, continuous, concave, monotonic utility that rationalizes the data set.  Existence of such utility function means that consumer behavior is rational. In this study, urban households' aggregate consumption data - involving 20 categories and subcategories – are used to investigate the rational behavior hypothesis in period 1965-2002. The findings indicate that rational behavior hypothesis is reliable and urban households' aggregate consumption data may be rationalized by a neoclassical utility function.       

Keywords

GARP
Neoclassical Utility Function
Afriat Theory
Afriat Index

  • Receive Date 11 May 2016
  • First Publish Date 11 May 2016

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