wow.. you are awesome. I spent 1 hour lecture in My Prof class without understanding anything. Thank you. You Should make Lecture videos and upload free or paid course in Udemy. Its totally worth buying. It will be awesome to get world class education.. I wish you be teacher.
Guy, I apologize for the delayed reply. You are correct that p1x1 + p2x2 = 5, and q1y1 + q2y2 also = 5. Thus, we know that on each choice occasion, the consumer spent $5. The key to finding revealed preference is to calculate the cost of the bundle the consumer didn't choose at a given set of prices, to determine if it is affordable. At (p1,p2) = (1,2), the cost of the y-bundle is p1y1 + p2y2 = 1*2 + 2*1 = 4. Since the consumer spent 5 on the x-bundle, we know he could have afforded to spend 4 on the y-bundle. Since he didn't buy the y-bundle, we conclude from his behavior that the x-bundle is directly revealed preferred to the y-bundle. Now, on the next choice occasion, we observer the consumer spending 5 on the y-bundle. The weak axiom of revealed preference says that the consumer will only do this if the x-bundle is not affordable, so we need to calculate the cost of the x-bundle at the q prices. The cost of the x-bundle is q1x1 + q2x2 = 2*1 + 1*2 = 4, so the x-bundle WAS affordable on this choice occasion. Since the x-bundle is affordable on this choice occasion, the weak axiom of revealed preference (WARP) predicts that the consumer would choose the x-bundle on this choice occasion. Since the consumer chose y instead, we conclude that the consumer's behavior violates WARP, which is the conclusion at around 6:38 in the video. Note that to determine revealed preferences, you should hold prices constant, and compare the costs of different bundles. Sorry again for the delayed reply - hope this response helps clear up any lingering confusion.
Hello, I have one question. When we assume consumer's preferences are strictly convex, aren't we already making an assumption on consumers' choices (What she will buy) before consumer reveals her choice. Isn't this a circular argument. What if consumer reveals her choice by purchasing a commodity inside the budget line.
This is quite an excellent insight, Sumit. The principle of revealed preference is a bit circular, in that we say that we know that someone likes something because they bought it, and they (must have) bought it because they liked it. If someone purchases something inside the budget line, then they haven't spent all their income. We can maintain convexity of preferences by just including another good that someone allocates the rest of their income towards - savings. Note convexity of preferences is a necessary condition to generate maximizing behavior, which is what we normally assume people are doing when they make purchasing decisions. Whether this is actually true in reality is another matter - and is basically an empirical question. Certainly, there is plenty of evidence from behavioral economics that seems consistent with the argument that people do not always make utility-maximizing decisions. Thank you for your comment, and thank you for watching!
Madame Silz-Carson, thank you for the video, however I don't quite understand in Example 3 how do you choose the diagonal? how does one know that the consumer chooses those bundles at those prices without knowing his budget? Or is it predefined by you that the consumer makes those choices so as to exemplify the WARP? Thank you in advance for the answer!
+Irina Iancu On choice occasion #1, the consumer chose bundle #1 and paid the first set of prices. Similarly, on choice occasion #2, the consumer chose bundle #2 and paid the second set of prices, and on choice occasion #3, the consumer chose the third bundle and paid the third set of prices. So, by construction, the diagonal represents the choices that the consumer actually made. If we assume that the consumer is spending his or her entire budget on each choice occasion, we can then infer the budget from the observed choices. Hope this helps!
no such thing as ablex or power or developx descix etc, ts not pwerx, just pseudo stuffx, monex mattersx not, cepux, say,do/can sayd,o any nmw and any can be perfx
![65. REVEALED PREFERENCE THEORY | STRONG & WEAK AXIOM OF REVEALED PREFERENCE [ SARP & WARP THEORY ]](http://i.ytimg.com/vi/FZ_ujWLnD6c/mqdefault.jpg)
This helped me a lot 🥰 thanks ma'am Katherine
Thank you Francis I am glad it was helpful. Thank you for watching!
Thank you so much. Finally understood rp after one whole year of struggling. Thank you.
Thank you one more time. I have benefited from your lectures a lot. Keep uploading! You are really great teacher.
Thank you for the compliment. And thank you for watching!
This is the best video ever.And you simply and effortlessly made me understood that with examples😊which I adored👌🏻
Thanks a bunch dear❤❤
Thank you for the lovely compliment and thank you for watching!
Thank you so much for this tutorial. I have a Micro test today and this video really helped :)
Thank you, Nawar! I hope that your test went well.
Thank you lot mam.This is i am waiting for. This video is very useful especially problems with solution.
Thank you for watching, Akshay!
Thank you so much! My exam is coming and this helps me a lot!
Ola Katherine
Sou estudante de economia no Brasil e adorei a forma que você explica!
thank you!
Fernanda, muchas gracias! (Sorry, I don't speak Portuguese!)
Thank you so much. Super helpful!!
Thank you thank you! So beautifully explained
Thank you for watching, Phil!
Thank you! It was very helpful to see examples 'in motion'.
You're welcome! I'm glad this video was helpful for you.
wow.. you are awesome. I spent 1 hour lecture in My Prof class without understanding anything. Thank you. You Should make Lecture videos and upload free or paid course in Udemy. Its totally worth buying. It will be awesome to get world class education.. I wish you be teacher.
Jami - thank you for watching! I am glad the videos were helpful. I will check out your suggestion about Udemy.
Excellent explanation! Thank you so much.
Thank you, refayet! I am glad the video was helpful!
Thank you so much😊
Thank you for watching!
Thank you!!! Well explained!
Thank you for watching!
Sorry quick question; at the 6:07 mark I went
(p1,p2)*(x1,x2) = 1*1+2*2 =5
then (q1,q2)*(y1,y2)= 2*2 +1*1 =5
Don't they both equal five?
Guy, I apologize for the delayed reply. You are correct that p1x1 + p2x2 = 5, and q1y1 + q2y2 also = 5. Thus, we know that on each choice occasion, the consumer spent $5. The key to finding revealed preference is to calculate the cost of the bundle the consumer didn't choose at a given set of prices, to determine if it is affordable. At (p1,p2) = (1,2), the cost of the y-bundle is p1y1 + p2y2 = 1*2 + 2*1 = 4. Since the consumer spent 5 on the x-bundle, we know he could have afforded to spend 4 on the y-bundle. Since he didn't buy the y-bundle, we conclude from his behavior that the x-bundle is directly revealed preferred to the y-bundle. Now, on the next choice occasion, we observer the consumer spending 5 on the y-bundle. The weak axiom of revealed preference says that the consumer will only do this if the x-bundle is not affordable, so we need to calculate the cost of the x-bundle at the q prices. The cost of the x-bundle is q1x1 + q2x2 = 2*1 + 1*2 = 4, so the x-bundle WAS affordable on this choice occasion. Since the x-bundle is affordable on this choice occasion, the weak axiom of revealed preference (WARP) predicts that the consumer would choose the x-bundle on this choice occasion. Since the consumer chose y instead, we conclude that the consumer's behavior violates WARP, which is the conclusion at around 6:38 in the video. Note that to determine revealed preferences, you should hold prices constant, and compare the costs of different bundles. Sorry again for the delayed reply - hope this response helps clear up any lingering confusion.
Hello, I have one question. When we assume consumer's preferences are strictly convex, aren't we already making an assumption on consumers' choices (What she will buy) before consumer reveals her choice. Isn't this a circular argument. What if consumer reveals her choice by purchasing a commodity inside the budget line.
This is quite an excellent insight, Sumit. The principle of revealed preference is a bit circular, in that we say that we know that someone likes something because they bought it, and they (must have) bought it because they liked it. If someone purchases something inside the budget line, then they haven't spent all their income. We can maintain convexity of preferences by just including another good that someone allocates the rest of their income towards - savings. Note convexity of preferences is a necessary condition to generate maximizing behavior, which is what we normally assume people are doing when they make purchasing decisions. Whether this is actually true in reality is another matter - and is basically an empirical question. Certainly, there is plenty of evidence from behavioral economics that seems consistent with the argument that people do not always make utility-maximizing decisions. Thank you for your comment, and thank you for watching!
@@KatherineSilzCarson Thank you for such quick reply. Your clarification was very helpful.
Madame Silz-Carson, thank you for the video, however I don't quite understand in Example 3 how do you choose the diagonal? how does one know that the consumer chooses those bundles at those prices without knowing his budget? Or is it predefined by you that the consumer makes those choices so as to exemplify the WARP? Thank you in advance for the answer!
+Irina Iancu On choice occasion #1, the consumer chose bundle #1 and paid the first set of prices. Similarly, on choice occasion #2, the consumer chose bundle #2 and paid the second set of prices, and on choice occasion #3, the consumer chose the third bundle and paid the third set of prices. So, by construction, the diagonal represents the choices that the consumer actually made. If we assume that the consumer is spending his or her entire budget on each choice occasion, we can then infer the budget from the observed choices. Hope this helps!
Thanks a lot. It is concise and complete.
Thank you for watching!
Thank you especially for the 3rd example. It was very confusing for me
You're welcome! I'm glad it was helpful. Thank you for watching!
Thanks a lot. This is really helpful.
Thank you for watching, Mia!
Do u have a video on strong axiom of revealed preference?
Please send me the link
Wahid, currently, I do not, but I will add it to my "To do" list. Thank you for watching!
Thank you
Thank you for watching!
thanks a lot, well explained. much better than my miserable professor
Thank you! I'm glad this video was helpful for you.
Thanks a lot! :)
You're welcome! Thank you for watching!
well explained
Thank you for watching, Suhail.
Thanks a lot
You're welcome. Thank you for watching!
no such thing as ablex or power or developx descix etc, ts not pwerx, just pseudo stuffx, monex mattersx not, cepux, say,do/can sayd,o any nmw and any can be perfx
4:17
thanks
You're welcome!