Fuzzy revealed preference theory

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Abstract

Rationality has traditionally been defined as choice behaviour which can be explained in terms of some implicit binary preference. The point of departure of this paper lies in permitting the binary preference relation to be “fuzzy.” Concepts from fuzzy set theory are used to formalise different notions of rationality, including degrees of rationality. The relation between these and traditional concepts is formally explored. In welfare economics, quasi-orderings have often been used to capture the inherent imprecisions of human value judgements. It is argued here that, in many situations, a more appropriate tool for this may be fuzzy orderings.

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This paper was written while the author was a visitor at the Center for Operations Research and Econometrics, Louvain-la-Neuve, and the Centre d'économie mathématique, Brussels. Many useful comments from Bhaskar Dutta and a referee are gratefully acknowledged.

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