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Revealed Preference Tests of Collectively Rational Consumption Behavior: Formulations and Algorithms

Author

Listed:
  • Fabrice Talla Nobibon

    (Senior Operations Research Analyst at FedEx, 1000 Brussels, Belgium)

  • Laurens Cherchye

    (Center for Economic Studies, University of Leuven, 3000 Leuven, Belgium)

  • Yves Crama

    (QuantOM, HEC-Management School, University of Liège, 4000 Liège, Belgium)

  • Thomas Demuynck

    (Maastricht University, 6211 LK Maastricht, Netherlands)

  • Bram De Rock

    (ECARES, Université Libre de Bruxelles, 1050 Bruxelles, Belgium)

  • Frits C. R. Spieksma

    (ORSTAT, Faculty of Business and Economics, University of Leuven, 3000 Leuven, Belgium)

Abstract

This paper focuses on revealed preference tests of the collective model of household consumption. We start by showing that the decision problems corresponding to testing collective rationality are NP-complete. This makes the application of these tests problematic for (increasingly available) large(r)-scale data sets. We then present two approaches to overcome this negative result. First, we introduce exact algorithms based on mixed-integer programming (MIP) formulations of the collective rationality tests, which can be usefully applied to medium-sized data sets. Next, we propose simulated annealing heuristics, which allow for efficient testing of the collective model in the case of large data sets. We illustrate our methods by a number of computational experiments based on Dutch labor supply data.

Suggested Citation

  • Fabrice Talla Nobibon & Laurens Cherchye & Yves Crama & Thomas Demuynck & Bram De Rock & Frits C. R. Spieksma, 2016. "Revealed Preference Tests of Collectively Rational Consumption Behavior: Formulations and Algorithms," Operations Research, INFORMS, vol. 64(6), pages 1197-1216, December.
    • Handle: RePEc:inm:oropre:v:64:y:2016:i:6:p:1197-1216
    DOI: 10.1287/opre.2016.1527
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    References listed on IDEAS

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    3. Kunimoto, Takashi & Serrano, Roberto, 2020. "Rationalizable Incentives: Interim Implementation of Sets in Rationalizable Strategies," Economics and Statistics Working Papers 4-2020, Singapore Management University, School of Economics.
    4. Smeulders, Bart & Crama, Yves & Spieksma, Frits C.R., 2019. "Revealed preference theory: An algorithmic outlook," European Journal of Operational Research, Elsevier, vol. 272(3), pages 803-815.
    5. Adams-Prassl, Abigail, 2019. "Mutually Consistent Revealed Preference Demand Predictions," CEPR Discussion Papers 13580, C.E.P.R. Discussion Papers.
    6. Carvajal, Andrés & Song, Xinxi, 2018. "Testing Pareto efficiency and competitive equilibrium in economies with public goods," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 19-30.
    7. Christine S. M. Currie & Trivikram Dokka & John Harvey & Arne K. Strauss, 2018. "Future research directions in demand management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 17(6), pages 459-462, December.
    8. Aguiar, Victor H. & Hjertstrand, Per & Serrano, Roberto, 2020. "A Rationalization of the Weak Axiom of Revealed Preference," Working Paper Series 1321, Research Institute of Industrial Economics.
    9. Dieter Saelens, 2022. "Unitary or collective households? A nonparametric rationality and separability test using detailed data on consumption expenditures and time use," Empirical Economics, Springer, vol. 62(2), pages 637-677, February.

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