Ruhr Economic Papers
Ruhr Economic Papers #179
Quasiconcave Preferences and Choices on a Probability Simplex – A Nonparametric Analysis
by Jan Heufer
TU Dortmund, 03/2010, 32 S./p., 8 Euro, ISBN 978-3-86788-200-2download
A nonparametric approach is presented to test whether decisions on a probability simplex could be induced by quasiconcave preferences. Necessary and suffi cient conditions are presented. If the answer is affi rmative, the methods developed here allow to reconstruct bounds on indiff erence curves. Furthermore we can construct quasiconcave utility functions in analogy to the utility function constructed in the proof of Afriat’s Theorem. The approach is of interest for decisions under risk, stochastic choice, and ex-ante fairness considerations. The method is particularly suitable for data collected in a laboratory experiment.
JEL-Classification: C14, C91, D11, D12,
Keywords: Afriat’s theorem; deterministic preferences; decisions under risk; experimental economcics; nonparametric methods; revealed preference; stochastic choice