Example 6.9: Bounding consumer preference

% Section 6.5.5, Figures 6.25-6.26
% Boyd & Vandenberghe "Convex Optimization"
% Original by Lieven Vandenberghe
% Adapted for CVX Argyris Zymnis - 11/30/2005
%
% We are given a set of consumer preference data for bundles
% of two goods x_1 and x_2. These points are generated by
% taking 40 random points and comparing them using the
% utility function: u(x_1,x_2) = (1.1*sqrt(x_1)+0.8*sqrt(x_2))/1.9
% Then, if we have u(i) >= u(j) we say that (i,j) is in Pweak.
%
% Given this, we wish to compare the point (0.5,0.5) to each
% of the bundles in the given dataset. I.e. for each point k in the
% dataset, we wish to decide wether u(k) >= u(0) or u(k) <= u(0),
% or both, in which case we cannot make any conclusions about
% consumer preferences.
%
% To do this, we have to solve two LPs for each point:
%       minimize     u(k) - u(0)
%       subject to   g_i  >= 0
%                    u(j) <= u(i) + g_i^T(a_j - a_i), for all i,j
%                    u(i) >= u(j), for all (i,j) in Pweak
%
% and:
%       maximize     u(k) - u(0)
%       subject to   g_i  >= 0
%                    u(j) <= u(i) + g_i^T(a_j - a_i), for all i,j
%                    u(i) >= u(j), for all (i,j) in Pweak
%
% If the second LP has a strictly negative solution, we can deduce that
% u(k) < u(0). If on the other hand the second LP has a nonnegative
% solution and the first LP has a strictly positive solution, we can
% deduce that u(k) > u(0). Finally if none of the two previous cases
% holds, we cannot make a decision between the two bundles.
%
% NOTE: This file requires the auxilliary function utilfun.m to run.

clear
cvx_quiet(true);

data= [...
   4.5e-01   9.6e-01
   2.1e-01   3.4e-01
   9.6e-01   3.0e-02
   8.0e-02   9.2e-01
   2.0e-02   2.2e-01
   0.0e+00   3.9e-01
   2.6e-01   6.4e-01
   3.5e-01   9.7e-01
   9.1e-01   7.8e-01
   1.2e-01   1.4e-01
   5.8e-01   8.4e-01
   4.9e-01   2.7e-01
   7.0e-02   8.0e-01
   9.3e-01   8.7e-01
   4.4e-01   8.6e-01
   3.3e-01   4.2e-01
   8.9e-01   9.0e-01
   4.9e-01   7.0e-02
   9.5e-01   3.3e-01
   6.6e-01   2.6e-01
   9.5e-01   7.3e-01
   4.2e-01   9.1e-01
   6.8e-01   2.0e-01
   5.2e-01   6.2e-01
   7.7e-01   6.3e-01
   2.0e-02   2.9e-01
   9.8e-01   2.0e-02
   5.0e-02   7.9e-01
   7.9e-01   1.9e-01
   6.2e-01   6.0e-02
   2.8e-01   8.7e-01
   6.9e-01   1.0e-01
   6.9e-01   3.7e-01
   0.0e+00   7.2e-01
   8.7e-01   1.7e-01
   6.3e-01   4.0e-02
   3.2e-01   7.3e-01
   4.0e-02   4.6e-01
   3.6e-01   9.5e-01
   8.2e-01   6.7e-01 ];

% objective point
obj=[0.5,0.5];

figure(1);
% display the utility function's level sets on some data points.

plot(data(:,1),data(:,2),'o');
hold on;

[X,Y] = meshgrid(0:.01:1,0:.01:1);
Z=(1.1*X.^(1/2)+0.8*Y.^(1/2))/1.9;

[C,h] = contour(X,Y,Z,[.1,.2,.3,.4,.5,.6,.7,.8,.9],'--');
clear X Y Z C
hold off;
xlabel('x_1');
ylabel('x_2');
hold off

m = size(data,1);  % number of baskets, including 0,1

% add preference data
Pweak = zeros(m+1,m+1);
for i=1:m,
   for j=1:m
      if (i~=j) & (1.1*data(i,1).^(1/2)+0.8*data(i,2).^(1/2))/1.9 >= ...
             (1.1*data(j,1).^(1/2)+0.8*data(j,2).^(1/2))/1.9,
         Pweak(i,j) = 1;
      end;
   end;
end;

% Find consumer preferences
data = [data; 0.5 0.5];
bounds = zeros(m,2);
for k = 1:m
    fprintf(1,'Deciding on bundle %d of %d\n',k,m);

    % Check for u(k) >= u(0.5,0.5)
    cvx_begin
        variables u(m+1) g_x(m+1) g_y(m+1)
        minimize(u(k)-u(m+1))
        subject to
            g_x >= 0;
            g_y >= 0;
            ones(m+1,1)*u' <= u*ones(1,m+1)+(g_x*ones(1,m+1)).*...
              (ones(m+1,1)*data(:,1)'-data(:,1)*ones(1,m+1))+...
              (g_y*ones(1,m+1)).*(ones(m+1,1)*data(:,2)'-data(:,2)*ones(1,m+1));
            (u*ones(1,m+1)).*Pweak >= (ones(m+1,1)*u').*Pweak;
    cvx_end
    bounds(k,1) = cvx_optval;

    % Check for u(0.5,0.5) >= u(k)
    cvx_begin
        variables u(m+1) g_x(m+1) g_y(m+1)
        maximize(u(k)-u(m+1))
        subject to
            g_x >= 0;
            g_y >= 0;
            ones(m+1,1)*u' <= u*ones(1,m+1) + (g_x*ones(1,m+1)).*...
              (ones(m+1,1)*data(:,1)'-data(:,1)*ones(1,m+1))+...
              (g_y*ones(1,m+1)).*(ones(m+1,1)*data(:,2)'-data(:,2)*ones(1,m+1));
            (u*ones(1,m+1)).*Pweak >= (ones(m+1,1)*u').*Pweak;
    cvx_end
    bounds(k,2) = cvx_optval;

end

figure(2);
hold off

% plot data pt and contour line through it
val = 1.1*sqrt(0.5)+ 0.8*sqrt(.5);   % value at center
t = linspace(((val-.8)/1.1)^2, 1, 1000);
y = ( (val - 1.1*(t.^(1/2)))/.8 ).^2;
plot(t,y,'--', [.5 .5], [0 1], ':', [0 1], [.5 .5], ':');
axis([0 1 0 1]);
hold on

for k=1:m
   if bounds(k,2) < 1e-5,  % preferred over (.5,.5)
      dot = plot(data(k,1),data(k,2),'o');
      %'MarkerSize',8);
   elseif bounds(k,1) > -1e-5,  % rejected in favor of (.5,.5)
      dot = plot(data(k,1),data(k,2),'o','MarkerFaceColor',[0 0 0]);
   else % no conclusion
      dot = plot(data(k,1),data(k,2),'square', 'LineWidth',1.0,...
           'MarkerSize',10);
   end;
end;
xlabel('x_1');  ylabel('x_2');
Deciding on bundle 1 of 40
Deciding on bundle 2 of 40
Deciding on bundle 3 of 40
Deciding on bundle 4 of 40
Deciding on bundle 5 of 40
Deciding on bundle 6 of 40
Deciding on bundle 7 of 40
Deciding on bundle 8 of 40
Deciding on bundle 9 of 40
Deciding on bundle 10 of 40
Deciding on bundle 11 of 40
Deciding on bundle 12 of 40
Deciding on bundle 13 of 40
Deciding on bundle 14 of 40
Deciding on bundle 15 of 40
Deciding on bundle 16 of 40
Deciding on bundle 17 of 40
Deciding on bundle 18 of 40
Deciding on bundle 19 of 40
Deciding on bundle 20 of 40
Deciding on bundle 21 of 40
Deciding on bundle 22 of 40
Deciding on bundle 23 of 40
Deciding on bundle 24 of 40
Deciding on bundle 25 of 40
Deciding on bundle 26 of 40
Deciding on bundle 27 of 40
Deciding on bundle 28 of 40
Deciding on bundle 29 of 40
Deciding on bundle 30 of 40
Deciding on bundle 31 of 40
Deciding on bundle 32 of 40
Deciding on bundle 33 of 40
Deciding on bundle 34 of 40
Deciding on bundle 35 of 40
Deciding on bundle 36 of 40
Deciding on bundle 37 of 40
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Deciding on bundle 39 of 40
Deciding on bundle 40 of 40