I lecture on Behavioral Finance at the University of Western Sydney this semester, and will record all my lectures and post them on my YouTube Channel ProfSteveKeen. In this first lecture (after the usual preliminaries of explaining assessment and the like to my 85 third year students), I cover the Neoclassical theory of consumer behavior.
As I note to my students, the concept I teach here–Revealed Preference–was taught in 1st year 40 years ago, when I was an fresher undergraduate. But the tuition of Neoclassical economics has been so dumbed down over the years that my 3rd year students hadn’t heard of it before. I expect it’s reserved as punishment for those who undertake an Honors degree these days!
After outlining the theory, I then cover the excellent experimental disproof of the theory by the German economists Reinhard Sippel:
Sippel, R. (1997). “An Experiment on the Pure Theory of Consumer’s Behaviour.” The Economic Journal 107 (444): 1431-1444.
I’m sure that disproving the theory wasn’t Sippel’s original intention. Instead, I suspect that he undertook the experiment to show to his students that their “indifference curves” could be inferred from their purchases, as Samuelson claimed long ago when he dreamed up the concept of Revealed Preference:
Samuelson, P. A. (1938). “A Note on the Pure Theory of Consumer’s Behaviour.” Economica 5 (17): 61-71.
Instead, Sippel found that his experimental subjects violated the “Axioms of Revealed Preference”.
In the first half of the lecture, I cover the axioms of revealed preference, and Sippel’s results:
In the second half, I interpret these results using ideas from computation theory: