CFDP 2087

CFDP Title: 

Revealed Price Preference: Theory and Stochastic Testing

Publication Date: May, 2017

Pages: 37pp


We develop a model of demand where consumers trade-off the utility of consumption against the disutility of expenditure. This model is appropriate whenever a consumer’s demand over a strict subset of all available goods is being analyzed. Data sets consistent with this model are characterized by the absence of revealed preference cycles over prices. The model is readily generalized to the random utility setting, for which we develop nonparametric statistical tests. Our application on national household consumption data provides support for the model.