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Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index

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  • Dziewulski, Paweł

Abstract

Despite its ad hoc nature and lack of an appealing economic interpretation, the critical cost-efficiency index (or CCEI) proposed in Afriat (1973) is one of the most widespread measures of departures from rationality. In this paper, we provide a behavioural foundation for this index by showing that it is equivalent to a notion of the just-noticeable difference — a measure of dissimilarity between alternatives that is sufficient for the agent to tell them apart.

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  • Dziewulski, Paweł, 2020. "Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index," Journal of Economic Theory, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:jetheo:v:188:y:2020:i:c:s0022053120300673
    DOI: 10.1016/j.jet.2020.105071
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    Cited by:

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    6. Eileen Tipoe & Abi Adams & Ian Crawford, 2022. "Revealed preference analysis and bounded rationality [Consume now or later? Time inconsistency, collective choice and revealed preference]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 313-332.
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    12. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Joshua Lanier, 2020. "Are Consumers Rational ?Shifting the Burden of Proof," Working Papers ECARES 2020-19, ULB -- Universite Libre de Bruxelles.

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    More about this item

    Keywords

    Utility maximisation; Generalised axiom of revealed preference; Critical cost-efficiency index; Interval order; Just-noticeable difference;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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