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Measuring rationality: percentages vs expenditures

Author

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  • Roy Allen

    (University of Western Ontario)

  • John Rehbeck

    (The Ohio State University)

Abstract

Individual choices are often inconsistent with economic theories, which has motivated a variety of ways to measure how far choices are from a given theory. Recent work has investigated the correlation between “measures of rationality” and observable information such as education or income. This paper investigates the sensitivity of this analysis to the units used to measure rationality, in particular we examine measures in percentage expenditure vs dollars expenditure. We find that correlations can change sign when we change the units, but this sensitivity might be mitigated with experimental methods.

Suggested Citation

  • Roy Allen & John Rehbeck, 2021. "Measuring rationality: percentages vs expenditures," Theory and Decision, Springer, vol. 91(2), pages 265-277, September.
    • Handle: RePEc:kap:theord:v:91:y:2021:i:2:d:10.1007_s11238-020-09791-z
    DOI: 10.1007/s11238-020-09791-z
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    Cited by:

    1. Federico Echenique, 2021. "On the meaning of the Critical Cost Efficiency Index," Papers 2109.06354, arXiv.org, revised Apr 2022.

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