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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
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
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
C ! B! , C 7 a7 " 5 b
C7" if C7" T B7
B7 if B7 T C7"
0 eB! B5 f C5
Then
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
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.
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
BT0 W a C W bBT0 C ,
where
!! : 8
of 8 objects can require up to
; :
: ;
11
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
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
system chooses the first word in this order. Or consider, for given
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
9 : CONSUMER PREFERENCE
Let there be a market of some 8 consumer goods, and consider
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
aB< [< b of B< out of [< a< " 5 b These choices together
That is, the consumer appears, in period <, as making the choice
[ eC :C / C 9 f
corresponding set
[ eC :C / C 9 f,
/ :B and
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
W a B C bBTt C B C
X a < BbBTt B< ?< B "
H ! H ! H !
G
<= => ;<
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
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