Friday, September 04, 2009

Samuelson’s Revealed Preference: A Failed Research Program

Wong (1978, 2006) grew out of what may have been the last doctorate thesis Joan Robinson supervised. As it is, Wong did not complete his thesis under Robinson's supervision. Luigi Pasinetti and then Geoffrey Harcourt later became Wong's supervisor.

Wong’s study is centered around three publications by Paul Samuelson, in 1938, 1948, and 1950. Samuelson, in 1938, according to Wong, attempted to construct a new theory without any reliance on utility theory or any concept that relies on non-observational phenomena. This theory was intended to be a replacement, not a complement for utility theory.

Samuelson, in 1940, according to Wong, attempted to construct indifference maps from observed consumer choices in a space of price and quantity observations. "The whole theory of consumer's behavior can thus be based upon operationally meaningful foundations in terms of revealed preference." -- Samuelson (1948)

Samuelson, in 1950, according to Wong, was responding to work primarily by Hendrik Houthakker, who showed that ordinal utility theory and revealed preference theory were logically equivalent. Thus, utility theory has the same empirical implications and operational foundations.

Wong interprets the observational equivalence of utility and revealed preference as a defeat for Samuelson's 1938 program. Samuelson, however, asserted this finding was the completion of a victorious research program. And mainstream economists have let him get away with this claim, without ever subjecting it to a critical inquiry.

"I soon realized that [the weak axiom of revealed preference] could carry us almost all the way along the path of providing new foundations for utility theory. But not quite all the way. The problem of integrability, it soon became obvious, could not yield to this weak axiom alone." -- P. A. Samuelson (1950)

  • Paul A. Samuelson (1938) “A Note on the Pure Theory of Consumer’s Behaviour”, Economica, v. 5: pp. 61-71.
  • Paul A. Samuelson (1948) “Consumption Theory in Terms of Revealed Preference”, Economica, v. 15: pp. 243-253.
  • Paul A. Samuelson (1950) “The Problem of Integrability in Utility Theory”, Economica, v. 17: pp. 355-385.
  • Stanley Wong (1978, 2006) Foundations of Paul Samuelson’s Revealed Preference Theory: A Study by the Method of Rational Reconstruction, Revised Edition, Routledge.

1 comment:

Anonymous said...

That's a very interesting post. I'm going to track down Wong's paper asap. I'm hoping we see a renaissance in the questioning of the basic axioms of economic agent modeling.