Supermodularity is not Falsifiable

Abstract

Supermodularity has long been regarded as a natural notion of complementarities in individual decision making; it was introduced as such in the nineteenth century by Edgeworth and Pareto. But supermodularity is not an ordinal property. We study the ordinal content of assuming a supermodular utility, i.e. what it means for the individual’s underlying preferences. We show that supermodularity is a very weak property, in the sense that many preferences have a supermodular representation. As a consequence, supermodularity is not testable using data on individual consumption. We also study supermodularity in the Choquet expected utility model, and show that uncertainty aversion is generally not testable when only bets are observed. JEL Classification: D11,D24,C78

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