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Parametric Recoverability of Preferences

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  • Halevy, Yoram
  • Persitz, Dotan
  • Zrill, Lanny

Abstract

We recover approximate parametric preferences from consistent and inconsistent consumer choices. The procedure seeks to utilize revealed preference information contained in choices by minimizing its ranking inconsistency with the proposed parametric preferences. We provide a novel characterization of the Varian Inefficiency Index, generalize it to a goodness-of-fit measure of recovered preferences, and decompose the latter into inconsistency and misspecification measures. This provides a reasonable way to test restrictions on parametric models. An application of the method to the data set constructed by [Kariv2007AER] to study choice under risk suggests more pronounced non-expected utility preferences than previously suggested.

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File URL: http://faculty.arts.ubc.ca/yhalevy/GARP_HPZ.pdf
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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number yoram_halevy-2012-20.

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Length: 70 pages
Date of creation: 30 Jun 2012
Date of revision: 16 Aug 2014
Handle: RePEc:ubc:pmicro:yoram_halevy-2012-20

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Web page: http://www.economics.ubc.ca/

Related research

Keywords: Revealed Preference; Recoverability of Preferences; GARP; non-expected utility; risk aversion;

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  1. Federico Echenique & Sangmok Lee & Matthew Shum, 2011. "The Money Pump as a Measure of Revealed Preference Violations," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1201 - 1223.
  2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  3. Jose Apesteguia & Miguel Angel Ballester, 2010. "A measure of rationality and welfare," Economics Working Papers 1220, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2011.
  4. Syngjoo Choi & Shachar Kariv & Wieland Müller & Dan Silverman, 2011. "Who Is (More) Rational?," NBER Working Papers 16791, National Bureau of Economic Research, Inc.
  5. Mark Dean & Daniel Martin, 2011. "Testing for Rationality with Consumption Data: Demographics and Heterogeneity," Working Papers 2011-11, Brown University, Department of Economics.
  6. Varian, Hal R., 1985. "Non-parametric analysis of optimizing behavior with measurement error," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 445-458.
  7. Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
  8. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
  9. David Ahn & Syngjoo Choi & Douglas Gale & Shachar Kariv, 2008. "Estimating Ambiguity Aversion in a Portfolio Choice Experiment," Levine's Working Paper Archive 122247000000001989, David K. Levine.
  10. Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency and Heterogeneity of Individual Behavior under Uncertainty," American Economic Review, American Economic Association, vol. 97(5), pages 1921-1938, December.
  11. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Y. Ozbay, 2012. "Revealed Attention," American Economic Review, American Economic Association, vol. 102(5), pages 2183-2205, August.
  12. Laurens Cherchye & Ian Crawford & Bram De Rock & Frederic Vermeulen, 2009. "The revealed preference approach to demand," ULB Institutional Repository 2013/132522, ULB -- Universite Libre de Bruxelles.
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