IDEAS home Printed from https://ideas.repec.org/a/spr/series/v9y2018i4d10.1007_s13209-018-0178-0.html
   My bibliography  Save this article

Classifying bounded rationality in limited data sets: a Slutsky matrix approach

Author

Listed:
  • Victor H. Aguiar

    (University of Western Ontario)

  • Roberto Serrano

    (Brown University)

Abstract

Given any observed finite sequence of prices, wealth, and demand choices, we propose a way to measure and classify the departures from rationality in a systematic fashion, by connecting violations of the underlying Slutsky matrix properties to the length of revealed demand cycles. The approach complements our previous study (Aguiar and Serrano in J Econ Theory 172:163–201, 2017), which is based on the entire demand function. The methodology can be easily applied in experimental demand data sets.

Suggested Citation

  • Victor H. Aguiar & Roberto Serrano, 2018. "Classifying bounded rationality in limited data sets: a Slutsky matrix approach," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 9(4), pages 389-421, November.
    • Handle: RePEc:spr:series:v:9:y:2018:i:4:d:10.1007_s13209-018-0178-0
    DOI: 10.1007/s13209-018-0178-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13209-018-0178-0
    File Function: Abstract
    Download Restriction: no
    File URL: https://libkey.io/10.1007/s13209-018-0178-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jerison, David & Jerison, Michael, 1992. "Approximately rational consumer demand and ville cycles," Journal of Economic Theory, Elsevier, vol. 56(1), pages 100-120, February.
    2. Chiappori, Pierre-Andre & Rochet, Jean-Charles, 1987. "Revealed Preferences and Differentiable Demand: Notes and Comments," Econometrica, Econometric Society, vol. 55(3), pages 687-691, May.
    3. 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.
    4. John, Reinhard, 1995. "The weak axiom of revealed preference and homogeneity of demand functions," Economics Letters, Elsevier, vol. 47(1), pages 11-16, January.
    5. Jose Apesteguia & Miguel A. Ballester, 2015. "A Measure of Rationality and Welfare," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1278-1310.
    6. Matzkin, Rosa L. & Richter, Marcel K., 1991. "Testing strictly concave rationality," Journal of Economic Theory, Elsevier, vol. 53(2), pages 287-303, April.
    7. Andreoni,J. & Harbaugh,W.T., 2005. "Power indices for revealed preference tests," Working papers 10, Wisconsin Madison - Social Systems.
    8. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    9. Yves Balasko & Mich Tvede, 2010. "General equilibrium without utility functions: how far to go?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 201-225, October.
    10. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1661-1710.
    11. Chen, Xiaohong, 2007. "Large Sample Sieve Estimation of Semi-Nonparametric Models," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 76, Elsevier.
    12. Shafer, Wayne J., 1977. "Revealed preference cycles and the slutsky matrix," Journal of Economic Theory, Elsevier, vol. 16(2), pages 293-309, December.
    13. David Ahn & Syngjoo Choi & Douglas Gale & Shachar Kariv, 2014. "Estimating ambiguity aversion in a portfolio choice experiment," Quantitative Economics, Econometric Society, vol. 5, pages 195-223, July.
    14. Kihlstrom, Richard E & Mas-Colell, Andreu & Sonnenschein, Hugo, 1976. "The Demand Theory of the Weak Axiom of Revealed Preference," Econometrica, Econometric Society, vol. 44(5), pages 971-978, September.
    15. Kohei Shiozawa, 2015. "Note on the goodness-of-fit measure for GARP; NP-hardness of minimum cost index," Discussion Papers in Economics and Business 15-18, Osaka University, Graduate School of Economics.
    16. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
    17. Aguiar, Victor H. & Serrano, Roberto, 2017. "Slutsky matrix norms: The size, classification, and comparative statics of bounded rationality," Journal of Economic Theory, Elsevier, vol. 172(C), pages 163-201.
    18. Kim, Taesung & Richter, Marcel K., 1986. "Nontransitive-nontotal consumer theory," Journal of Economic Theory, Elsevier, vol. 38(2), pages 324-363, April.
    19. John Quah & Hiroki Nishimura & Efe A. Ok, 2013. "A Unified Approach to Revealed Preference Theory: The Case of Rational Choice," Economics Series Working Papers 686, University of Oxford, Department of Economics.
    20. Hurwicz, Leonid & Richter, Marcel K, 1979. "Ville Axioms and Consumer Theory," Econometrica, Econometric Society, vol. 47(3), pages 603-619, May.
    21. Peter Lee & Kam-Chau Wong, 2005. "Revealed preference and differentiable demand," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 855-870, June.
    22. Hosoya, Yuhki, 2017. "The relationship between revealed preference and the Slutsky matrix," Journal of Mathematical Economics, Elsevier, vol. 70(C), pages 127-146.
    23. Jerison, David & Jerison, Michael, 2001. "Real income growth and revealed preference inconsistency," UC3M Working papers. Economics we012902, Universidad Carlos III de Madrid. Departamento de Economía.
    24. 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.
    25. Mas-Colell, Andreu, 1974. "Continuous and smooth consumers: Approximation theorems," Journal of Economic Theory, Elsevier, vol. 8(3), pages 305-336, July.
    26. Epstein, Larry G. & Yatchew, Adonis J., 1985. "Non-parametric hypothesis testing procedures and applications to demand analysis," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 149-169.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Raghav Malhotra, 2022. "(Functional)Characterizations vs (Finite)Tests: Partially Unifying Functional and Inequality-Based Approaches to Testing," Papers 2208.03737, arXiv.org, revised Dec 2023.
    2. Victor H. Aguiar & Roland Pongou & Roberto Serrano & Jean-Baptiste Tondji, 2018. "An Index of Unfairness," Working Papers 2018-9, Brown University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Victor Aguiar & Roberto Serrano, 2015. "Slutsky Matrix Norms and Revealed Preference Tests of Consumer Behaviour," Working Papers 2015-1, Brown University, Department of Economics.
    2. Aguiar, Victor H. & Serrano, Roberto, 2017. "Slutsky matrix norms: The size, classification, and comparative statics of bounded rationality," Journal of Economic Theory, Elsevier, vol. 172(C), pages 163-201.
    3. Geoffroy de Clippel & Kareen Rozen, 2018. "Consumer Theory with Misperceived Tastes," Working Papers 2018-10, Brown University, Department of Economics.
    4. Victor H. Aguiar & Roberto Serrano, 2013. "Slutsky Matrix Norms and the Size of Bounded Rationality," Working Papers 2013-16, Brown University, Department of Economics.
    5. Geoffroy de Clippel & Kareen Rozen, 2020. "Relaxed Optimization: e-Rationalizability and the FOC-Departure Index in Consumer Theory," Working Papers 2020-07, Brown University, Department of Economics.
    6. Roy Allen & John Rehbeck, 2021. "Measuring rationality: percentages vs expenditures," Theory and Decision, Springer, vol. 91(2), pages 265-277, September.
    7. Victor H. Aguiar & Roberto Serrano, 2018. "Cardinal Revealed Preference, Price-Dependent Utility, and Consistent Binary Choice," Working Papers 2018-3, Brown University, Department of Economics.
    8. Aguiar, Victor H. & Serrano, Roberto, 2021. "Cardinal revealed preference: Disentangling transitivity and consistent binary choice," Journal of Mathematical Economics, Elsevier, vol. 94(C).
    9. Thomas Demuynck & John Rehbeck, 2023. "Computing revealed preference goodness-of-fit measures with integer programming," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1175-1195, November.
    10. Dziewulski, Paweł, 2020. "Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index," Journal of Economic Theory, Elsevier, vol. 188(C).
    11. Pawel Dziewulski, 2018. "Just-noticeable difference as a behavioural foundation of the critical cost-efficiency," Economics Series Working Papers 848, University of Oxford, Department of Economics.
    12. Carvajal, Andres & Ray, Indrajit & Snyder, Susan, 2004. "Equilibrium behavior in markets and games: testable restrictions and identification," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 1-40, February.
    13. Jerison, David & Jerison, Michael, 1993. "Approximately Rational Consumer Demand," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 217-241, April.
    14. 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.
    15. Ian Crawford & Bram De Rock, 2014. "Empirical Revealed Preference," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 503-524, August.
    16. 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.
    17. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    18. Jerison, David & Jerison, Michael, 2001. "Real income growth and revealed preference inconsistency," UC3M Working papers. Economics we012902, Universidad Carlos III de Madrid. Departamento de Economía.
    19. Federico Echenique, 2021. "On the meaning of the Critical Cost Efficiency Index," Papers 2109.06354, arXiv.org, revised Apr 2022.
    20. Polemarchakis, Herakles & Selden, Larry & Song, Xinxi, 2017. "The identification of attitudes towards ambiguity and risk from asset demand," CRETA Online Discussion Paper Series 28, Centre for Research in Economic Theory and its Applications CRETA.

    More about this item

    Keywords

    Consumer theory; Rationality; Slutsky matrix norm; Revealed preference approach; Bounded rationality;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D10 - Microeconomics - - Household Behavior - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:series:v:9:y:2018:i:4:d:10.1007_s13209-018-0178-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.