TESTS OF COMPETING THEORIES OF CONSUMER CHOICE AND THE REPRESENTATIVE CONSUMER HYPOTHESIS.

This paper is concerned with two general questions related to the fact that market demand curves are negatively sloped with respect to own-price effects. Negatively sloped demand curves need not result from any explicit utility-maximising process but could be an incidental by-product of some other behavioural process in conjunction with changes in the opportunity set. The most prominently cited example of such a behavioural-process model in the economics literature is Becker's (1962) irrational-choice model, in which essentially random behaviour controls choices. Another prominently cited example, this one from the psychology literature, is the matching law (Herrnstein, 1970). We extend and generalise these models, considering four specific possibilities. An explicit utility-maximising formulation may embody any one of a variety of motivational processes. Some biologists and psychologists have argued that behaviour is motivated by attempts to minimise deviations from some optimal state values (Houston and McFarland, 1980; Staddon, 1979). We consider a generalised version of this model which we refer to as the generalised minimum-distance hypothesis, the most familiar member of which is the quadratic utility function. The antithesis of the generalised minimum-distance hypothesis is a motivational process in which subjects attempt to meet 'minimum' survival requirements first, after which they are free to allocate expenditure in any fashion desired. This is a common theme in much of the applied consumer demand theory literature (see Deaton and Muellbauer, 1980). The generalised constant elasticity of substitution utility function provides a convenient first approximation to employ in characterising this process. [ABSTRACT FROM AUTHOR]