CRA’s Cristian Ugarte Caraball recently published “The generality of the strong axiom” in Economic Theory.
The paper studies how choice data can be used to test whether choices align with a strictly concave utility function, which is a widespread assumption in economic research made to simplify the analysis. Dr. Ugarte specifically addresses the challenge of testing this property in the presence of noisy data.
Using a combination of partial efficiency – a common non-parametric method for analyzing choice data – and the Strong Axiom of Revealed Preferences, the paper develops a general test for the strict concavity of the utility function. Applying this test to laboratory data, the study finds that strict concavity is empirically well-supported, suggesting it is not a restrictive assumption in practice.