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Generating Random Optimising Choices

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  • Jan Heufer

Abstract

We provide an efficient way to generate random choices which are consistent with utility maximisation. They are drawn from an approximate uniform distribution on the admissible region on each budget based on a Markovian Monte Carlo algorithm due to Smith (Oper Res 32(6):1296–1308, 1984 ). This can be used to extend Bronars’ (Econometrica 55(3):693–698, 1987 ) method by approximating the power of tests for conditions for which utility maximisation is necessary but not sufficient (e.g., homotheticity, separability, etc.). The approach can also be applied to production analysis. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Jan Heufer, 2014. "Generating Random Optimising Choices," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 295-305, October.
    • Handle: RePEc:kap:compec:v:44:y:2014:i:3:p:295-305
    DOI: 10.1007/s10614-013-9393-8
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    References listed on IDEAS

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    1. Robert L. Smith, 1984. "Efficient Monte Carlo Procedures for Generating Points Uniformly Distributed over Bounded Regions," Operations Research, INFORMS, vol. 32(6), pages 1296-1308, December.
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    8. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
    9. Jan Heufer, 2013. "Testing revealed preferences for homotheticity with two-good experiments," Experimental Economics, Springer;Economic Science Association, vol. 16(1), pages 114-124, March.
    10. Heufer, Jan, 2014. "Nonparametric comparative revealed risk aversion," Journal of Economic Theory, Elsevier, vol. 153(C), pages 569-616.
    11. Hal R. Varian, 1983. "Non-parametric Tests of Consumer Behaviour," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(1), pages 99-110.
    12. Heufer, Jan, 2011. "Stochastic Dominance and Nonparametric Comparative Revealed Risk Aversion," Ruhr Economic Papers 289, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    13. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-597, May.
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    Cited by:

    1. Demuynck, Thomas, 2021. "A Markov Chain Monte Carlo procedure to generate revealed preference consistent datasets," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    2. Hjertstrand, Per, 2021. "Power against random expenditure allocation for revealed preference tests," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 36-45.
    3. Hengzhen Lu & Yingying Zhang & Ling Xiao & Gurjeet Dhesi, 2022. "A State-of-the-Art Fund Performance Index: Higher-Order Omega and Its Consistency with Almost Stochastic Dominance," JRFM, MDPI, vol. 15(10), pages 1-20, September.
    4. Hjertstrand, Per, 2019. "Power Against Random Expenditure Allocation for Revealed Preference Tests," Working Paper Series 1309, Research Institute of Industrial Economics, revised 30 Apr 2021.

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