1
$\begingroup$

The definition of revealed preferred seems like coming out of nowhere. Why there's a string of direct revealed preferences lie between? Can we use directly revealed preferred in GARP condition ------GARP says that if $x \succsim_{D} y$, $y \nsucceq_{D} x$?

$\endgroup$

1 Answer 1

2
$\begingroup$

We need indirect comparisons because looking at direct comparisons is not sufficient to detect all types of inconsistencies. Suppose for instance that we observe $C(x,z)=\{x\},C(z,y)=\{z\}$ and $C(x,y)=\{y\}$. $C(x,y)=\{y\}$ implies that $y$ is "directly" revealed preferred to $x$. The reason why GARP is violated is that $C(x,z)=\{x\}$ and $C(z,y)=\{z\}$ imply that $x$ is "indirectly" revealed preferred to $y$, an inference that wouldn't be possible by looking at direct comparisons.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.