Do Rational Demand Estimates Differ from Irrational Ones? Evidence from an Induced Budget Experiment
AbstractBoth early and recent work have highlighted certain similarities between rational and irrational demand. We re-examine these findings using experimental choice data. After separating our subjects' choices into rational and irrational subsets based on consistency with the axioms of revealed preference, we estimate and compare demand coefficients from the resulting subsamples, finding significant differences between the two. We also predict consistency based on sociodemographics and cognitive ability, then split the sample using predicted consistency and again estimate and compare the resulting subsamples' demand coefficients. These comparisons indicate differences between rational and irrational demand and are largely consistent with successful prediction.
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Bibliographic InfoPaper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0714.
Date of creation: Sep 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-24 (All new papers)
- NEP-CBE-2007-09-24 (Cognitive & Behavioural Economics)
- NEP-DCM-2007-09-24 (Discrete Choice Models)
- NEP-EXP-2007-09-24 (Experimental Economics)
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