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Parametric Recoverability of Preferences

Author

Listed:
  • Yoram Halevy
  • Dotan Persitz
  • Lanny Zrill

Abstract

Revealed preference theory is brought to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices. We propose measures of the incompatibility between the revealed preference ranking implied by choices and the ranking induced by the considered parametric preferences. These incompatibility measures are proven to characterize well-known inconsistency indices. We advocate a recovery approach that is based on such incompatibility measures and demonstrate its applicability for misspecification measurement and model selection. Using an innovative experimental design, we empirically substantiate that the proposed revealed-preference-based method predicts choices significantly better than a standard distance-based method.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/697741
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    Cited by:

    1. Ian Crawford & Bram De Rock, 2014. "Empirical Revealed Preference," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 503-524, August.
    2. Jan (J.P.M.) Heufer & Per Hjertstrand, 2017. "Homothetic Preferences Revealed," Tinbergen Institute Discussion Papers 17-103/I, Tinbergen Institute.
    3. Hiroki Nishimura & Efe A. Ok & John K.-H. Quah, 2017. "A Comprehensive Approach to Revealed Preference Theory," American Economic Review, American Economic Association, vol. 107(4), pages 1239-1263, April.
    4. Annie Liang, 2016. "Inference of Preference Heterogeneity from Choice Data," PIER Working Paper Archive 16-029, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 04 Oct 2016.
    5. repec:eee:jetheo:v:179:y:2019:i:c:p:275-311 is not listed on IDEAS
    6. Heufer, Jan, 2014. "Nonparametric comparative revealed risk aversion," Journal of Economic Theory, Elsevier, vol. 153(C), pages 569-616.
    7. 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.
    8. Laurens Cherchye & Sam Cosaert & Thomas Demuynck & Bram De Rock, 2017. "Group consumption with caring individuals," Working Papers Department of Economics 598911, KU Leuven, Faculty of Economics and Business, Department of Economics.
    9. repec:eee:jeborg:v:157:y:2019:i:c:p:602-614 is not listed on IDEAS
    10. Jan Heufer & Per Hjertstrand, 2015. "Homothetic Efficiency and Test Power: A Non-Parametric Approach," Tinbergen Institute Discussion Papers 15-064/I, Tinbergen Institute.
    11. Costa-Gomes, Miguel & Cueva, Carlos & Gerasimou, Georgios, 2014. "Choice, Deferral and Consistency," SIRE Discussion Papers 2015-17, Scottish Institute for Research in Economics (SIRE).
    12. Federico Echenique, 2019. "New developments in revealed preference theory: decisions under risk, uncertainty, and intertemporal choice," Papers 1908.07561, arXiv.org.
    13. Paolo Giovanni Piacquadio, 2017. "A Fairness Justification of Utilitarianism," Econometrica, Econometric Society, vol. 85, pages 1261-1276, July.
    14. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Khushboo Surana, 2018. " Revealed preference analysis with normal goods: application to cost of living indices," Working Papers Department of Economics 622433, KU Leuven, Faculty of Economics and Business, Department of Economics.
    15. Pawel Dziewulski, 2019. "Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index," Working Paper Series 0519, Department of Economics, University of Sussex Business School.
    16. Matthew Polisson, 2018. "A Lattice Test for Additive Separability," Discussion Paper Series, School of Economics and Finance 201801, School of Economics and Finance, University of St Andrews.
    17. Breitmoser, Yves & Vorjohann, Pauline, 2018. "Welfare-Based Altruism," Rationality and Competition Discussion Paper Series 89, CRC TRR 190 Rationality and Competition.
    18. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Khushboo Surana, 2018. " Revealed preference analysis with normal goods: application to cost of living indices," Working Papers Department of Economics 622433, KU Leuven, Faculty of Economics and Business, Department of Economics.
    19. Crockett, Sean & Friedman, Daniel & Oprea, Ryan, 2017. "Aggregation and convergence in experimental general equilibrium economies constructed from naturally occurring preferences," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2017-501, WZB Berlin Social Science Center.
    20. 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.
    21. 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.
    22. Geoffroy de Clippel & Kareen Rozen, 2018. "Consumer Theory with Misperceived Tastes," Working Papers 2018-10, Brown University, Department of Economics.
    23. repec:spr:series:v:9:y:2018:i:4:d:10.1007_s13209-018-0178-0 is not listed on IDEAS

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    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • D00 - Microeconomics - - General - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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