A revealed preference theory of monotone choice and strategic complementarity

Abstract

We carry out a revealed preference analysis of monotone comparative statics. We ask what restrictions on an agent's observed choice behavior are necessary and sufficient to rationalize the data with a preference guaranteeing that choices are always monotone with re- spect to a parameter. We extend our analysis to a game-theoretic setting where players' chosen actions, the strategy sets from which actions are chosen, and the parameters which may affect payoffs are observed. Variation in the data arises from changes to parameters and/or changes to the strategy sets. We show that an intuitive and easy-to-check property on the data set is necessary and sufficient for it to be consistent with the hypothesis that each observation is a pure strategy Nash equilibrium in a game with strategic complementarity. When a data set obeys this property, we show how to exploit this data to identify the set of possible Nash equilibria in a game outside the set of observations.