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Are Consumers (Approximately) Rational? Shifting the Burden of Proof

Author

Listed:
  • Laurens Cherchye

    (KU Leuven)

  • Thomas Demuynck

    (Université Libre de Bruxelles)

  • Bram De Rock

    (Université Libre de Bruxelles and University of Leuven (KU Leuven))

  • Joshua Lanier

    (Southwestern University of Finance and Economics, Liulin Campus (Main Campus))

Abstract

We present a statistical test for the hypothesis of (approximate) utility maximization on the basis of nonparametric revealed preference conditions. We take as null hypothesis that the consumer behaves randomly, and we reject this hypothesis only if the data provides sufficient evidence to support the alternative hypothesis of approximate utility maximization. Our statistical test uses a permutation method to operationalize the principle of random consumption behavior. We show that our test (i) is valid for any sample size under the null and (ii) has an asymptotic power of one. We also provide simulated power results and two empirical applications.

Suggested Citation

  • Laurens Cherchye & Thomas Demuynck & Bram De Rock & Joshua Lanier, 2025. "Are Consumers (Approximately) Rational? Shifting the Burden of Proof," The Review of Economics and Statistics, MIT Press, vol. 107(6), pages 1652-1666, November.
    • Handle: RePEc:tpr:restat:v:107:y:2025:i:6:p:1652-1666
    DOI: 10.1162/rest_a_01360
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