Changing Tastes and Effective Consistency
Coauthor(s): Xiao Wei.
Adobe Acrobat PDF
In a single commodity setting with changing tastes, an individual's consumption plan can be obtained using naive or sophisticated choice. We provide two sufficient conditions for when (i) the solutions are unique and agree and (ii) the common plan is representable by a non-changing tastes utility. Because the solution is not revised over time, the plan and associated preferences are referred to as being effectively consistent. Afriat-style revealed preference tests are derived. The assumption of effective consistency can mitigate the problems of vulnerability to Dutch Books, non-existence of a competitive equilibrium and the aggregation of heterogeneous agents with changing tastes.
Source: The Economic Journal
Selden, Larry, and Xiao Wei. "Changing Tastes and Effective Consistency." The Economic Journal (forthcoming).