Artigo Afriat

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Artigo Afriat

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AFRIAT

Principles of

Choice and Preference

Issued as

Paper No. 160, February 1967

Institute For Research

In The Behavioral, Economic

And Management Sciences

Herman C. Krannert Graduate School

Of

Industrial Administration

Purdue University

22 September 2006

Universit di Siena

Dipartimento di Economia Politica

Piazza S. Francesco, 7

53100 Siena, Italy

+39 0577 289322

+39 339 417 8518

afriat@unisi.it

www.econ-pol.unisi.it/~afriat/

Foreword

there has been minor editing, the original style of the document

has been kept as far as possible. The paper was submitted for

publication in Econometrica, and accepted subject to the requirement that

the last section be omitted. To the extent that I could understand a reason

for this requirement I was not inclined to accept it, and the paper was not

then published. However, from being issued as Institute Paper 160,

February 1967, it had a circulation and the influence has been evident, in

cases both with and without apparent awareness of source.

A case I know well, where ample acknowledgment is provided, is the

Oxford D Phil thesis of Yasumi Matsumoto, Choice Functions:

Preference, Consistency and Neutrality, 1982, done with supervision of

Amartya Sen. I was one of the examiners.

The general subject of choice functions perhaps had its beginnings

with Kenneth J. Arrows Rational choice functions and orderings,

1959. The path independence which features in my paper had attention

from a number of writers, Charles Plott I suppose being among the first

with his Path Independence, Rationality and Social Choice, 1973.

Matsumotos thesis records other cases, and from communications with

Murat Sertel I gather there are others again, including himself.

This paper having been put aside, I gave some report on the contents

in my out-of-print Logic of Choice and Economic Theory, 1989. There

has been a return to it now in order to give it a review, and perhaps to

consider again its possible publicationafter all, the conditional

acceptance had no time limit!

The list of references at the end of the paper remains as it was, and

the following are additional.

BIBLIOGRAPHY

Afriat, S. N. (1967). Principles of Choice and Preference. Institute Paper

No. 160, Institute for Research in the Behavioral, Economic and

Management Sciences, Herman C. Krannert Graduate School of

Industrial Administration, Purdue University.

(1987). Logic of Choice and Economic Theory. Oxford: Clarendon

Press.

(1995). The Connection between Demand and Utility. Economics

Department, European University Institute, San Domenico di Fiesole

/Firenze (February).

(1996). Revealed Preference Revealed. Society for the Advancement

of Economic Theory Conference on Economic Theory and

Applications, Antalya, Turkey, 16-21 June, 1996. Discussion Paper

No. 98-7, Department of Economics, Bilkent University, Ankara,

1998. Revised version: Quaderno No. 265 (October 1999),

Department of Political Economy, University of Siena.

Arrow, Kenneth J. (1959). Rational choice functions and orderings.

Economica, N. S., 26, 121-7.

Ferejohn, J. A. and D. Grether (1977). Weak Path Independence. Journal

of Economic Theory 14.

Grether, D. and Charles Plott (1982). Nonbinary Social Choice: An

Impossibility Theorem. Review of Economic Studies 49.

Hansson, B. (1968). Choice Structures and Preference Relations. Synthese

18.

Matsumoto, Yasumi (1982). Choice Functions: Preference, Consistency

and Neutrality. D Phil Thesis, Oxford, 1982. Supervised by Amartya

Sen.

Parkes, P. R. (1976). Further Results on Path Independence, Quasi-

transitivity and Social Choice. Public Choice 26.

Plott, Charles (1973). Path Independence, Rationality and Social Choice.

Econometrica 41.

Richter, M. K. (1966). Revealed Preference Theory. Econometrica 34.

Sen, A. K. (1970). Collective Choice and Social Welfare. San Francisco:

Holden Day.

(1971). Choice Functions and Revealed Preference. Review of

Economic Studies 38.

Sertel, Murat (19??). (Additions, reader please advise.)

Contents

Introduction

1 : Choice

2 : Search and Elimination

3 : Binary Choice

4 : Preference

5 : Choice Relations

6 : Analysis of Choice

7 : Progressive Choice

8 : Goods

9 : Consumer Preference

References

Introduction

A

first step in examination of an act is to view it as a choice. It is

even impossible to recognize an act otherwise. Choice is the

abstraction for action. If anything is done, there is, by the free

nature of an act, always the antithesis that it might not have been done,

and this invokes all else that might have been done instead. This space of

possibility is given some abstract form. But even the identification of

what has been done is an abstraction, a limited specification that one

pretends suffices. Merely with a form of description a space of possibility

can immediately be presented, by the variations within that form. These

are the logical possibilities, which arise just from the manner of picturing

the possible, and they need not be real possibilities, however such can be

distinguished. Then when an act is presented as a choice, there is the

problem of accounting the singularity of what is done which differentiates

it in the variety of what might have been done. The account should

involve a principle which applies uniformly to the possibilities, yet

singles out the particular act, in terms of its cause, the motive, or the

objective. Value is a term serving that principle, with preference as a

cardinal concept for its expression.

Whatever the scope of the concept of choice and the

systematization of choice by preference, it remains just a model, a form

of representation and analysis. It is a scheme that can always be applied

to behavior, in some fashion, even without any assured significance. The

model of a choice system based on a preference order is habitual to

thought, in particular to economics; even in a more general perspective,

order appears as an almost invariable component in measurement. But

there is some puzzle about its singularity and unquestioned acceptance.

An analogy can be made with the routine of regression analysis between

experimental variables about which nothing is entertained but that they

have something to do with each other. Perhaps, if there is such a thing, it

is the scheme compelled by a regard for the empty form of the matter,

and beyond that ignorance.

Choice making is in the most familiar experience. Yet choice

systems, that proceed directly to a decision, are not. In the common

phenomena of choice making usually there are complex processes which

lead towards choice. The processes can be performed variously, but the

understanding is implicit that their variety makes no difference, that the

outcome is always the same, A choice process can be familiar as a

process of progressive search and elimination, and as such it can be well

illustrated from experience. The stability or invariant outcome of search

by variety of processes will here make the basis for the model of a choice

system based on a preference order. General principles concerning choice

and preference will be laid down, and illustrated, in particular in regard to

the analysis of consumption. A new approach to the analytical theory of

consumption is developed, by considering a scheme of consumption data,

and then certain economic questions that might be asked of that data.

1 : CHOICE

With any act of an agent there are other possibilities, which might been

performed instead. Otherwise there is just a constraint. But other

possibilities there is an unaccounted freedom, and there arise question of

the cause of the act, the motive or objective, which singles it out from

among the other possible acts.

By the state of an agent is meant all those factors in conjunction

whose alteration makes a difference of importance to the agent. Action of

the agent is to bring about some such alteration.

Consider an agent whose possible states are in a set D . On any

occasion of action there is a certain set S D of states which are

attainable. The agent is faced with a set of possibilities; and action then

is to decide some element x S . The Principle of Choice asserts the

chosen element to be a function just of the range of possibilities, That is,

x = f ( S ) , where f is a function of S D such that f ( S ) S . Such a

function defines a choice system, with domain D .

In manifestation of choice in familiar experience, such choice

systems do not have immediacy. Rather, choice is brought about by a

process, subjecting possibilities to search and progressive elimination

narrowing them down towards a final result. Witness tournaments with a

first, second, , and a final round, or a ladder in which each contestant

can challenge a place above. There is implicit acceptance that the initial

drawing makes no difference, the outcome is invariably determined. Or

consider how a choice is commonly made by freely ruling out any

possibility which makes an unfavorable comparison with any other. It is

assumed it makes no difference to the outcome how this procedure is

carried out. The processes for a choice, the searches and eliminations, can

be various, but compatibility with the Principle of Choice requires that

the outcomes be invariably the same. It is required to characterize the

structure imposed on choice systems by this condition of invariant

outcome for processes they generate1. Such an invariance is perhaps more

intelligible to practical choosers than any statement of such structure, or

even the concept of a choice system itself. It will be made the basis for a

normal model for a choice system.

1

A different kind of discussion, directed towards axiomatic description, rather than a

model of choice making process, has been given by Arrow (1959).

2

Consider search processes, based on a choice system 0 , as follows.

Assume, for simplicity, that H is finite, so any W H is finite.2 A

search path will describe the elements in W in some order, say

0 eB! B5 f eB! B5 f

and, applied to any pair of possibilities. it determines

0 eB< B= f eB< B= f

A search process, with the given path, consists in formation of a

search sequence C! C5 where

C! B! C7 0 eC7" B7 f a7 " 5 b

Thus, with initial choice B! and proceeding along the path, the

chosen element held at any stage is retained until it can be replaced

by a preferred element on the path, and so on until the path is fully

described and the search is terminated. The result of search, with

that path, is the final term C5 of the search sequence which derives

from it. Thus, it is a function of the path which can be called a

search function, and be denoted

J aB! B5 b C7

The definition of the search function can be restated

J aB! B" B# B5 b 0 e 0 e0 eB! B" f B# f B5 f

From the form it appears that

J aB! B< B5 b J aJ aB! B< b B5 b

which shows a progressive property of the search process, the final

term of an initial stage becoming the initial term of a further stage.

The condition to be considered for 0 is that its choice in any set

coincides with the result of any search, along whatever path, that is

J aB! B5 b 0 eB! B5 f

By this condition, f can be said to be normal. Since eB! B5 f is

a set, irrespective of order of the elements, normality implies that

can be resolved into a finite set of neighborhoods of approximately similar

possibilities, and choice made among these neighborhoods. Then the chosen

neighborhood can become the field of choice for a finer search by the same

process, and so forth until search is fine enough. This shows, in a fashion, how

the framework of finite choice is not so limiting.

3

unchanged by permutation of the arguments, that is

J aB! B5 b J aB1! B15 b

where 1 is any permutation of ! 5 . This can be called the

search symmetry condition, for 0 . Normality also implies that

0 eB! B< B5 f J aB! B< B5 b

J aJ aB! B< b B5 b

0 e0 eB! B< f B5 f

Accordingly, for any V, W H,

0 eV W f 0 e0 eV f W f

which states that the choice in any set is the same as the choice in a

set obtained from it when all unchosen elements in any subset have

been eliminated. This can be called the elimination consistency

condition for a choice system. Repeated application of it gives

return to the normality condition, so the two conditions are

equivalent. Thus, with

W W! W " W # W 5

we have

0 aW b 0 a 0 0 a0 aW! b W" b W# W5 b

in particular, the W s could be single elements. The principle of a

tournament with a final between two divisions also follows from

the elimination principle, and is

0 aV W b 0 e0 aV b 0 aW bf

More generally, there could be a tree of divisions, stemming from a

single node) for the winner.3

It is now required to characterize the structure of a choice

system which satisfies this elimination consistency condition or,

what is equivalent, the normality condition which requires the same

result for search with every path, and then moreover that this

Though there would be conflict with the notions here entertained, there should

be no surprise if invariably A defeats B, B defeats C, and C defeats A. For

these teams when they get together really play different games. With the one

pair the game resolves into a contest between the forwards, with the other

between etc. (ignorance of football prohibits a more specific demarcation of

possibilities). This note reports something of a conversation with William C.

Brainard (following a game). Cf. Arrows voting paradox.

4

search processes appear as in stable pursuit of that choice.

A search process,, as defined. is made up of a sequence of binary

binary choice system which derives from it. A binary choice system

can be stated by the relation of the chosen element to the unchosen

element in any couple, that is, by a binary choice relation

T H H, where BT C means that, in choice between B and C , B

is chosen. Thus the binary choice relation T which derives from a

choice system 0 is defined by

BT C 0 eB C f B

Normality allows recovery of 0 from T . Thus, for any B! B5

define

C ! B! , C 7 a7 " 5 b

C7" if C7" T B7

B7 if B7 T C7"

0 eB! B5 f C5

Then

by virtue of its being a binary choice relation T , and then the

further necessary property if it is to provide a symmetric search

function, as is required if it derives from a normal choice system.

Thus firstly, for all B C H, BT C or CT B, but not both unless

B C That is,

BT C CT B BT C CT B B C

which conditions states T to be a complete, antisymmetric (anti-2-

cyclic) relation. In particular, BT B BT B, that is BT B for all B,

which states T is a reflexive relation. This is all that can be

supposed for a binary choice relation, such as would derive from a

general choice system 0 . But now let 0 be normal. Let B C D be any

T -3-cycle, that is BT C CT D DT B, so that

0 eB C f B 0 eC D f C 0 eD Bf D

J aB C D b 0 e0 eB C f D f 0 eB D f D

Then

J aC D Bb 0 e0 eC D f Bf 0 eC Bf B

5

0 eB C f requires

J aB C D b J aC D Bb

Hence D B Similarly, B C Accordingly,

BT C CT D DT D B C D

that is, T is anti-3-cyclic. This condition, together with the

completeness of P, gives

BT C CT D B C DT B

BT D BT D

BT D

-Thus, BT CT D BT D , that is, T is a transitive relation. It follows

from this that

BT CT T D BT D

Now further,

BT CT T B BT C CT T B

BT C CT B

B C

Therefore

BT CT T B B C

that is, T has no cycles of distinct elements, which is to say T is an

anticyclic relation.

Thus P, being reflexive and transitive, is an order. By

completeness, it is a complete order, and by antisymmetry,

equivalent to anticyclicity for a transitive relation, it is a simple

order. Thus T is a simple complete order, which is to say a total

order.

Thus, considering a binary choice relation T and the search

function J which corresponds to it, it has appeared that if J is

symmetric then T Is transitive. It will be seen now that, conversely,

if T is transitive then J is symmetric. Thus, with T as a binary

choice relation, necessarily complete and antisymmetric, assume T

definition, if

C! B! , C7 7" a7 " 5 b,

C if C7" T B7

B7 if B7 T C7"

then C C5 But if C7" T B7 then C7 C7" so that, by the

reflexivity of T , C7 T C7" and if B7 T C7" then C7 B7 so that

C7 T C7" . Hence,

6

C7 T C7" a7 " 5 b.

Thus

C5 T C5" T T C!

and, since T is transitive, this implies C= T C< a= <b Therefore

CT C< a< ! 5 b,

since C C5 Thus CT eC! C5 f But

C7 T B7 a7 ! 5 b

Hence, since T is transitive, CT eB! B5 f Similarly, if

C J aB1! B15 b where 1 is any permutation of ! 5

then CT eB1! B15 f But

eB1! B15 f eB! B5 f

Hence, CT eB! B5 f But

C C eB! B5 f

Therefore CT C and CT C; whence, by the antisymmetry of T ,

C C, as required. Also shown here is the existence and

uniqueness of a superior element in any totally ordered finite set,

which presents itself obvious in the image of a set of points lying

along a line.

Thus, with T any binary choice relation, that is a complete,

antisymmetric relation, and JT denoting the search function

associated with it, JT is symmetric if and only if T is transitive and

therefore a total order. In this case,

JT aB C b 0T eB C f

where 0T is a choice function such that 0T aW b B is the unique

element in W which is superior in T , that is, such that BT W .

However, if T T0 is the binary choice relation which derives

from a given choice system 0 , this does not then mean, as is

required for the normality of 0 , that 0 0T ; for the ternary

quaternary, choices of 0 are not bound by any condition on the

binary choices. The condition 0 0T where T T0 is to be

considered in terms of the preferences associated with 0 through all

its choices.

% : PREFERENCE

A choice is defined by a set and an element in it, thus by aB W b,

where W is the range of choice and B W is the chosen element.

Any choice can be identified with the set of ordered couples in

7

which the first term is the chosen element and the second term is

any element in the range, thus

aB W b eaB C b C W f

These ordered couples state the preferences in the choice, the first

term being preferred to the second. Thus the preferences in a

choice give the preference of the chosen element to every element

in the range. The choice is identical with the set of preferences in it.

Given any choice system 0 , with domain H, the choices of 0

choices, that is

c0 eaB W b B 0 aW b W Hf

eaB Cb B 0 aW b C W Hf

this defining the preference relation of 0 . In particular, the binary

choice relation which derives from 0 is the set

T0 eaB C b B 0 eB C f B C Hf c0

of preferences just in the binary choices.

Now 0 has antisymmetric preferences if c0 is an antisymmetric

relation, in other words if it does not include any opposite

antisymmetric implies T0 c0 because any enlargement of T0 ,

which is already complete, must introduce a preference opposite to

which states B 0 aW b is the superior element in W in the total

order T0 This shows 0 0T where T = T0 Thus, a necessary

and sufficient condition that a choice system 0 be normal is that its

associated search function be symmetric, and its preferences

antisymmetric; or what is the same, that the binary choice relation

which derives from it be transitive, and identical with its

preference relation.

Thus, the familiar model is presented of a normal choice

system 0 , determined by a total order T of the possibilities, which

chooses in any set the one element which is superior in that order.

It is a total choice system that has been considered, in that it

chooses a single element in every set in its domain.

Correspondingly, T is a total preference system, being a simple,

complete order.

8

Now let O be a set of sets, and let 0 be a function which

define a choice system, effective in O . Let 0 be defined to be

subsets of a set H. Now a total choice system can be defined to be a

choice system which is simple and complete. Thus so far

discussion has been concerned only with such total choice systems.

But choice systems which are both partial and incomplete are

exemplified wherever there are equivalent possibilities between

which no distinction can be made. They are exemplified in

economics, for instance by the consumer who chooses points only

in budget regions, to determine a maximum of utility; and then

these points generally form a set, though in case of a strictly

concave utility function there will be only one such point. The

normal model for such a more general choice system can, on

grounds to be shown, again be based on a preference order, that is,

a reflexive transitive relation, but now without the antisymmetry

condition for it to be a simple order, and without the completeness

condition for it to be a complete order. Again, the approach will be

through processes for the discovery of choices.

5 : CHOICE RELATIONS

A general choice system, with a set Y as universe can be

considered as a subrelation 0 of the relation I of membership of

elements to sets in Y to which they belong. Thus with I given by

BIW B W W Y

a choice relation is given by any 0 I , where B0 W , implying

B W and W Y , means B is a choice permitted by 0 in W . In

particular, 0 is simple in H Y if

a W HbB0 W C0 W B C

that is, if 0 permits at most one distinct element to be chosen in any

set W H. Also 0 is complete in D if

a W Hba BbB0 W

that is, if 0 permits at least one element to be chosen in every

W H. Then 0 is a total choice system with domain H if it is

both simple and complete that is, chooses just one element in

every set in H Generally, the set of elements chosen by 0 in a set

9

aB Cb where C W . The preferences in 0 are any preferences

shown in any of its choices. Thus they form the relation T0 where

BT0 C B0 W C W

which can be called the preference relation of 0 . With the

Now with the relation T0 Y Y there can, with no

confusion in the double connotation, be associated a further

relation

T0 Y #Y

BT0 W a C W bBT0 C ,

where

preference of B in relation to every element in S. In particular,

BT0 eCf BT0 C

Consider the choice system f* defined by

B0 W BT0 W B W

It is the choice system which arises when all the preferences which

appear in the choices of 0 are brought to bear on choices in any set,

the bearing of preference on choice being in the decision of chosen

elements as preferred elements. Automatically, 0 0 . The

Principle of Preference is that if a preference appears in any

choice, then it should have bearing on every choice. Applied to the

choice system 0 , it requires the extension of 0 to 0 . Let 0 be

called the closure of 0 ; more explicitly, it is the closure of 0 by its

own preferences. Then let 0 be called closed if 0 0 . Obviously

the closure of any choice relation is closed, 0 0 . For, by the

construction of 0 , T0 T0 The compatibility of 0 with the

principle of preference requires 0 to be closed, and thus of the form

0 0T where

B0T W BT W B W ,

and where T is a reflexive relation. For such a system, T0 T ; so

that 0 0 , and it is closed.

Now again let the idea be entertained that choices permitted

by a system 0 in a set W are not found directly but are discovered

by a process of search. Let a sequence of elements B C D W

be called a T -chain if BT CT T D , with origin D and final element

10

A B D a T -chain. The final element B in a final T -chain

B C D in W with origin D defines a T -final element in W with

origin D. The process of search which is to be considered consists

in formation of T -chains in W starting with any origin D , and

continuing them until they become final, so as to determine a T -

final element with that origin. As the condition for the normality of

0 , the choices permitted by 0 in any set are to be the elements

discoverable as T -final elements in W with whatever origin. But

the condition that B be a T -final element with origin D can be

stated BTt D , where Tt defined by

BTt D a C! C5 b B C! D C5 C! T T C5

is the chain extension of T , being the relation between extremities

of T -chains, and it has the property of being the transitive closure

of T , that is, the minimal transitive relation containing T . So the

condition for B to be T -final in W with whatever origin is

a D W bBTt D

that is BTt W . With B W , this is equivalent to B0t W , where 0t 0Tt

is the closed choice system with preference relation Tt , where

T T0 Generally, 0 0t But normality requires 0 0t ;

equivalently, that 0 be closed, and T0 Tt 0 But T0 Tt 0 is the

condition that T be transitive. Since T0 is in any case reflexive,

this therefore is the condition it be a reflexive transitive relation,

that is an order. The relation 0t defines the normal closure of any

0 I It is the minimal normal relation containing 0 . Thus a

necessary and sufficient condition that a choice system be normal

is that it be closed and its preferences form an order ; and now the

normal form of a preference system, defined by association with a

normal choice system, is an order. It is the form for a preference

system which without comment is usually assumed. It is the

familiar standard model for a preference system, and choice by

preferences in such a system is the standard model for a choice

system. It has here been related to model processes of search in

making a choice, and assumptions about those processes. A feature

to be remarked is that while a general choice system in a universe

!! : 8

of 8 objects can require up to

; :

: ;

11

more than 8. Thus, given a transitive relation T between 8 objects,

there exists a minimal relation F such that T Ft. This relation T

has the property

BFCF FD BFD , or Ft F F

of being intransitive, it defines the intransitive base for T , and is

given by F T T # It contains at most 8 elements All the

choices which result from T can be discovered by search with F .

Accordingly, in choices with a normal system. no more than 8

elements need so to speak, to be born in mind. While it might be

questionable to link this directly with a logical ground for the

model, certainly it shows its practical facility.

6 : ANALYSIS OF CHOICE

Given any choice system 0 J there can be formed its preference

relation T T0 , then the transitive closure Tt of T , and then the

choice system 0t 0Tt . The method of analysis of choice by the

concept of preference is summed up in this formation 0t from 0 .

The relation 0t can be defined by its property of being the normal

closure of 0 , or the smallest normal relation in which 0 can be

contained, that is, it is normal, contains 0 , and is contained in every

normal choice relation that contains 0 . The method of preference

analysis of a given system f consists in viewing it as part of some

normal system 1, that is a system 1 based on a preference order.

Any such system 1 must contain 0t . But 0t is such a system, and any

normal system containing 0t is such a system. Thus 0t is crucial to

the method. The method consists in expectation of certain further

choices 0t from any given choice 0 . Thus if 0 states some choices

that have been observed, then by this observation there will

subsequently be anticipation of choices as stated by 0t . In other

words, with any given preferences, such as could be shown in some

observed choices, there goes the anticipation that these, together

with the further preferences contained in T , will bear on any

further choice which might be made. As in any statistical analysis,

observation is to be made the basis of expectation. Classical

methods of statistics proceed by associating finite schemes of data

with such analytical fictions as distribution characteristics, to

which inertia is to be attributed, and with that give the basis for

expectations. Preference is the peculiar statistical concept for the

12

there might be no real systematic structure at all to a variety of

observed choices. But if a systematic character does exist, the

proposal is that it might be grasped in terms of preferences. Inertia

is attributed to preferences, so that, once observed in any act of

choice, they will tend to be present and condition any other acts of

choice. But they must, according to their nature as a concept, be

carried together in a transitive system. A transitive system which

contains any given preference must also contain their transitive

closure. Therefore whenever any references are shown, so also are

the preferences in their transitive closure taken as shown.

0 eaB< W< b < " 5 f

with preference relation T0 defined by

BT0 C a < " 5 bB B< C W<

with transitive closure Tt 0 defined by

BTt C a D! D5 b B D! C D5 D! T T D5

That is,

BTt C a < = >bB B< B= W< C W>

On data of the 5 choices, there is expectation of any choice B in a

set W for which B0t W , where

B0t W BT0 W B W

If such a process gives expectation of the preference of B to C,

while at the same time. on some other ground, or by the same

process, there is expectation of the absence of this preference, there

is a contradiction of expectations. It appears that the absence of

such contradictions makes it a basis for various theories of choice,

such as the theory of choice of consumption, as is going to be

remarked later here; or the von Neumann-Morgenstern utility

theory of choice of probability, as has been considered elsewhere.4

The peculiar form of these theories is associated in each case with

the form of the choice sets, and some other simple assumption.

Thus in the case of the consume it could be the thrifty use of

money, or that more of any goods is better, or that more of all

goods is better, as will be discussed later ; and in the other case,

13

displacement at any point determines a preferred direction at every

point. With general principles about choice and preference taken

for granted, such simple assumptions are an entirely sufficient

ground for these theories.

7 : PROGRESSIVE CHOICE

In the nature of an act it is a simple choice. There is a set of

possibilities and just one is chosen. Thus while general choice

systems have certain manifestations, it is simple choice that is

especially important. It is now to be considered how simple choice

can be approached progressively, by means of a sequence of

general choice systems. The choice systems have primary,

secondary, rates in a hierarchic sequence say 0" 0# Given

any set W! , it is the initial set in a sequence

W7 07 W7" a7 " # b

If W: is a single element, at some stage :, then so is W; for ; :.

Thus the primary system forms a set of candidates from the initial

set W! , then the secondary system forms a set among these, and so

forth, narrowing down the possibilities until a single element

emerges. None of the base systems need be simple, nor even any of

the compound systems 0< 0" . Yet, for a given set W! ,

0< 0 " W !

can be a single element, for a sufficiently large < depending on W!

Such a system of progressive choice, possibly, and possibly

not, ending in simple choice, is exemplified by election to different

official ranks through the levels in a political body; or again, by

progressive examinations which not everyone survives; or, for

another kind of instance, by systems of filters which finally isolate

a single spectral component; or again, a certain kind of view of

evolutionary emergence; and so forth. For another example, let W!

elements. The progressive system 0" 0# finally chooses a

vector in any W! with the largest first differing element. For given

W! , and 7 sufficiently large, 07 0" W! is a single element, which

is the first vector in the set in the order of first differing elements.

The vectors could be words, the elements being letters. This order

for any set of words is the order they would have if they were

arranged in a lexicon; and, given any set of words, the choice

14

system chooses the first word in this order. Or consider, for given

8 and 5 8, the set of

! 8

5

3<

<"

8 : GOODS

The fundamental descriptive coordinates of economics are

quantities of goods. Sometimes their connotation as such is taken

to mean that more is better. Such an assumption can be

misleading, unless specific conditions are explicit. If more bread is

unpalatable without more jam, then more bread, without more jam,

is not better; it leaves the consumer where he was before, insofar as

concern is with consumption, and possibly worse off than he might

have been since money could have been spent uselessly which

could have been spent in the gain of some other value. Thus the

assumption that more is better is an inalienable attribute of so-

called goods is unwarranted. But it appears in the familiar

monotonicity assumption of utility theory, and also in production

theory in the classical assumption that a production function is

differentiable and the partial derivatives are all positive. These

assumptions are interpreted as condition for non-saturation. But for

this they are not necessary, if saturation is to mean, as seems most

natural, that the utility or production function has a maximum and

the maximum is attained.

Even though more is better is generally inappropriate, the

condition less is not better can be seen to be acceptable with

appropriate qualification, and "less is worse" is a condition of

general importance, as a condition of economic efficiency. Thus let

S eB B aB" B8 b 9 f

B S, where

the possibility of disposal, so that the agent is to alter possession

from B to any C S such that C B. Then with possession of B

the agent has choice in the set

WB eC 9 C Bf

15

and therefore, if T is the agents preference relation, that BT WB , that

is

C B BT C,

that is, less is not better, this not excluding the important possibility

that less might be as good. But now suppose that the goods have

exchanged value, between themselves and also with further goods

not represented in S but which touch the agents interests. Were it

the case that some lesser C B is as good as B, in retaining B

instead of C the agent would be foregoing a surplus of value

derived from B C, and, assuming the agent has other interests

which could receive value from that surplus, he freely sustains the

positive cost of a lost opportunity, which is not normal.

Therefore, assuming the agent conforms to the normal model for

choices, and assuming possession of a stock in S is not entirely

comprehensive of the agents interests, less cannot be as good, that

is

C B CT B

Together with the condition that less is not better, this gives that

less is worse. This proposition, and similarly certain others to be

considered, can be made a logical ground for the usual theory of

consumer behavior, as will now be seen

9 : CONSUMER PREFERENCE

Let there be a market of some 8 consumer goods, and consider

some 5 different periods < " 5 in which the vectors of prices

vectors of observed quantities of goods purchased by the consumer

consumer, if it is to have real content, must have realization as a

The expenditures in the periods are /< :< B< For the same

expenditures, any consumptions C< 9 such that :< C< /< are

feasible; that is any C< [< , where

[< eC< :< C< /< C< 9 f

In particular

C< [< a< " 5 b

16

amount is shown committed in each period, equal to the amount

spent, the consumer appears in any period as making a choice

among all consumptions which are feasible for the money spent.5

aB< [< b of B< out of [< a< " 5 b These choices together

That is, the consumer appears, in period <, as making the choice

0 eaB< [< b < " 5 f

The viewing of the consumer's consumption in any period in this

way as a choice thus makes a reduction of the date to the relation

0.

The interest of data Is that it should be a source in the

formation of expectations. In the case of the consumer, who does

nothing but consumes, in any period, any significant expectation

concerns consumption in some period, when the prices are given or

in any way conditioned. Therefore let there be a new period, in

which it is supposed the prices are going to be :. It is required to

form an expectation concerning the vector of consumption B in that

period. Whatever it is, there will be an expenditure /, such that

:B /, and, as before, B will appear as a choice out of the

[ eC :C / C 9 f

corresponding set

revealed preference principle of Samuelson (1948). Then from the choices the

preferences are derived automatically, and can be collected together as a set.

Then by requiring that opposite preferences not be revealed, Samuelsons

weak axiom of revealed preference is obtained. But the general principle

concerning choice of preference (see note 5, p. 15) make it just as appropriate

to request that there be no opposing preferences in the transitive closure of the

preferences revealed in the choices; and then the strong axiom of

Houthakker (1950) is obtained. However, Houthakker proposes this axiom not

with such a derivation, but as an alternative mathematical characterization of

the class of differentiable demand functions which have the property that they

give consumption as the absolute maximum of some utility function subject to

the budget constraint. In other words. it is presented as just having a

mathematical meaning, as a descriptive axiom for this class of demand

functions; and so the complete revealed preference idea touched by Samuelson

but of which the idea of formation of the transitive closure is an essential part,

escapes. It needs to be remarked that the Houthakker axiom is only

appropriate to the case of an absolute maximum of utility which is part of the

main case In which there Is just a maximum. Moreover, the analysis for a

demand system, which gives a single consumption on each budget constraint.,

gives no result for a general set of choice data, in particular a finite set such as

is treated here, and which is most fundamental for empiricism.

17

will therefore give an expectation about B.

Now, an analysis of choice on the normal model leads to

formation of 0t from 0 . and to the expectation of any choice B out

of any new set [ for which B0t [ . What is the same, the method

leads to formation of the relation

T eaB C b a <bB B< C [< f

containing the preferences in the choices of 0 , and then to

formation of the transitive closure Tt of P, where

BTt C a < = >bB B< B= [< C [>

and to the expectation that if B is a consumption at prices :, and

[ eC :C / C 9 f,

/ :B and

Given the way an act of consumption has been viewed as a

choice, the procedure thus far follows from entirely general

peculiarity is the form of the choices aB< [< b, and this has not

principles, and there is nothing distinctive about it. The only

brought any result. Analysis would have it end at this point, were

there no other significant attributes of the consumer to be

entertained and exploited; in which case, it would seem, the

familiar theory of the consumer, with a preference map, with

concave boundaries, which could be represented as the levels of a

quasiconcave utility function, would have no basis in general

method. It would appear to be a special model, presented outright,

explicitly, or possibly, what is logically the same, implicitly

through some axiomatic description, such as have been a well

known labor and mystification of consumption analysts.

In order to proceed further, the construction of the relation T

will first be made more plain. Define ?< /<" ?< , so that ?< B< ",

and

y [< ?< C " C 9

Now

B< Tt B= a : ; >bH<: ! H:; ! H>= !

Consider the following conditions on the data:

[ a B C bBTt C B C

18

W a B C bBTt C B C

X a < BbBTt B< ?< B "

H ! H ! H !

G

<= => ;<

[ W X G

Thus, immediately, W [ and

[ a < = C bB< Tt B= ?= C " B< C

W a < = C bB< Tt B= ?= C " B< C

X a < =bB< Tt B= ?= B< " G

Then further, from ?< 9 follows

?= C " B< C ?= B< "

?= B< " a Cb?= C " B< C

Hence,

[ G W [ X G

so that

[ W X G

The conditions [ W X will now be interpreted separately.

Thus, [ asserts that, for some C, there is some B C such that

BT C, that is, some quantities in C can be reduced and the resulting

consumption B is still as good as C. In other words, some amounts

of goods are not wanted, or C is an inefficient consumption in that a

smaller one is as good. The condition [ , which will be called the

want condition, therefore means that no consumption C exists

which can be shown on the data to be inefficient. This does not

exclude the possibility of inefficient points; merely that, with the

data available, they cannot be demonstrated. If the monotonicity, or

non-saturation, law more is better is to be required, then certainly

[ is required, if the data is to be compatible with that law.

Now for W , it is equivalent to the assertion that, for the actual

consumption B< in some period <, there exists some C B< such

that B< T C That is, all the quantities consumed in period < could be

increased, without a better consumption being the result. This

means that in some period < the consumer is proved on the data to

be at a point of consumption saturation. Therefore W asserts that

the data cannot show the consumer to be in any period at a point of

19

saturation. This does not mean that in any period the consumer

might not actually be saturated; merely that the data does not prove

it. Nor does it exclude the possibility of saturation for

consumptions other than the B observed. If non-saturation is to be

required as a general hypothesis, then certainly W will be required,

for the compatibility of the data with the hypothesis. This limited

interpretation being understood, W can be called the non-saturation

condition.

The condition X is that, for some period <, there exists an B

such that BT B< and :< B /< Thus, on the evidence of the data,

the consumer could have got in some period < a consumption B as

good as B< , and cheaper, and is unthrifty in not doing so, since he

could have saved some money at no sacrifice. Thus X means that,

on the data, the consumer is demonstrably unthrifty in some period;

and X allows that the consumer might be unthrifty, but requires

that it cannot be proved. If the character of unfailing thriftiness is

to be attributed to the consumer, it must not be contradicted by the

evidence, and this requires the condition X , which will be called

the thrift condition.

Thus three possible attributes of the consumer, concerning

thrift, want and insatiability, though logically inequivalent as

general characteristics, in each case obtain the same condition of

the data if they are not to be contradicted; and that condition is G ,

which will be called the cyclical condition, on the data. This then is

the necessary and sufficient condition that any of the three

mentioned attributes of the consumer can be entertained, without

contradiction from the evidence of the data.

But still there is no manifestation of the usual theory of the

consumer, as seeking consumption which will give a maximum, for

the money spent, of a utility function of the usual form, monotone

and quasiconcave, or what is the same, a utility relation with a map

of the usual form. However, now it will be made to appear. The

cyclical condition is necessary and sufficient for the existence of a

solution -< Q< of the system of simultaneous linear inequalities

-< ! -< H<= Q= Q< a< = " 5 b6

Therefore, assume the cyclical condition, and let a-< Q< b

a< " 5 b be any solution where -< is to define a multiplier

and Q< a level, associated with the consumption B< in period <.

They are going to be interpreted as a Lagrangian multiplier or

20

marginal utility, and a utility level, respectively, for a utility

From u< 9 and -< ! follows 1< 9 so Q< aBb is an increasing

linear function of B. Now, for all B, define

QaBb mine Q< aBb < " 5 f

Then QaBb is an increasing concave function, and thus has the form

of a classical utility function. It remains to show that

QaB< b maxeQaBb ?< B "f

Thus, it is immediate that Q< aB< b Q< Also

Q< Qs -= H=< Qs 1= aB< B= b Qs aB< b

so that Q< aB< b Qs aB< b Hence

QaB< b mine Q= aB< b = " 5 f Q< aB< b Q<

Now further,

?< B " ?< aB B< b !

1< aB B< b !

Q< aBb Q< .

But QaBb QaB< b Hence

?< B " QaBb Q<

But ?< B< ", and QaB< b Q< Hence

QaB< b Q< maxeQaBb ?< B "f

as required.

It is noticed further that

?< B " QaBb QaB< b

This shows not only is QaBb at a maximum at B< subject to the

constraint ?< B ", but it is a thrifty maximum: it cannot be

attained where u< B ". Moreover, as is easily seen,

BTt C QaBb QaCb

That is, if the relation Q be defined by

BQC QaBb QaCb,

then Tt Q. Thus Tt has been expressed as part of a relation of a

form that corresponds to a standard consumers preference map. It

can be expressed as a part of such a relation in a certain infinity of

21

ways,

Any kind of characteristic of the consumer, more specifically,

any feature in the structure of wants, the separations,

complementarities, and substitutabilities, such as can be described

in the framework of a standard map, can be given determination

from each of the infinity of standard maps in which Tt can be

embedded, and thus be found with a certain range of variation,

representing the information concerning them that is contained in

the data. For instance, a cost of living index has determination

which describe a certain interval, and the limits which define the

interval can be found.7 In particular, the upper limit based data just

for the base and current period appears as a Laspeyres index.8 Well

known lore interprets the Laspeyres index as an upper limit, though

without the sense of the interpretation ever being made fully

explicit. It also interprets the Paasche index as a lower limit, but, in

the sense here proposed, it does not appear as such.9 In fact, even

given that the data satisfy the conditions for admitting explanation

by a utility function, or the various other hypotheses here

considered, which impose the same condition on the data, the

Paasche index can be greater than the Laspeyres index10, which

renders the proposition absurd.

It has appeared that any of three different assumptions, thrift,

etc., about the consumer are sufficient to require any observable

data to admit explanation by a utility function. No more can be

attributed to this function than that it is a representational device.

Certainly the consumer may be unaware of attachment to a utility

function, and still act in a way that admits such representation. But

even if the consumer were deliberately guided by such an

attachment, the function need not be a function of the standard

form. It could be a function of any shape, but since communication

takes place only acts of consumption from the market, that shape

could never be communicated. So long as the consumer is thrifty, it

would always be possible to make representation of observed

behavior by a classical utility function, even if the real utility

function were different. To make this clear, assume any function Q

such that

QaB< b max eQaBb ?< B " B 9f

7 Afriat (1967,ii).

8 Afriat (1963,ii).

9 Afriat (1963,ii)

10 Afriat (1963 iii).

22

for the maximum condition. Since ?< B< ", the thrift condition is

?< B " QaBb QaB< b

The maximum condition gives

?< B " QaBb QaB< b

Hence, with H<= ?< B= "

H<= ! QaB= b QaB< b

H<= ! QaB= b QaB< b

Therefore, from

H<= ! H=> ! H;< !

follows

QaB< b QaB= b QaB< b

and hence that

QaB< b QaB= b QaB< b

But then

H<= ! H=> ! H;< !

is impossible. Thus the cyclical condition must be satisfied. But, by

this condition, there exists an increasing concave function which

can have the same role as Q, so far as anything observable is

concerned.

REFERENCES

Afriat, S. N. (1962): Preference scales and expenditure systems.

Econometrica 30, 305-323.

(1962): The validity of the expected utility hypothesis. Recent

Advances in Game Theory, Princeton University Press, 73-82.

(1963i): The systems of inequalities +<= B= B< Proc.

Cambridge Phil. Soc., 59,125-133.

(1963ii): An identity concerning the relation between the

Paasche and Laspeyres indices. Metroeconomica 15, II-III,

136-40.

(1963iii): The method of limits In the theory of index numbers.

Presented at the Joint European Conference of the Institute of

Mathematical Statistics and the Econometric Society, July

23

Meeting, Econometrica 1964.

(1967i). The construction of utility functions from expenditure

data. International Economic Review 8.

(1967ii): The cost of living index. M. Shubik, ed. Essays in

Mathematical Economics in Honor of Oskar Morgenstern.

Princeton University Press. Ch. 23: 335-66.

Arrow, K. J. (1959): Rational choice functions and orderings.

Economica N. S. 26, 121-7.

Houthakker, H. S. (1950): Revealed preference and the utility

function. Economica N. S. 17,159-74.

Samuelson, P. A. (1948): consumption theory in terms of revealed

preference. Economica N. S. 15, 243-53.

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