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Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index

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  • Matthew Polisson
  • John Quah

Abstract

This note explains the equivalence between approximate rationalizability and ap- proximate cost-rationalizability within the context of consumer demand. In connection with these results, we interpret Afriat's (1973) critical cost efficiency index (CCEI) as a measure of cost (in)efficiency, in the sense that a consumer is spending more money than is required to achieve her utility targets.

Suggested Citation

  • Matthew Polisson & John Quah, 2022. "Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index," Bristol Economics Discussion Papers 22/754, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:22/754
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    References listed on IDEAS

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    3. Aluma Dembo & Shachar Kariv & Matthew Polisson & John K.-H. Quah, 2021. "Ever Since Allais," Bristol Economics Discussion Papers 21/745, School of Economics, University of Bristol, UK.
    4. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    5. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
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