Approximately Rational Consumer Demand
We define measures of violations of Slutsky symmetry and negative semidefiniteness and relate them to measures of revealed preference inconsistencies exhibited by nonoptimizing demand behavior. The degree of Slutsky asymmetry is shown to restrict the rate at which real income can rise everywhere along smooth loops in income and price space. The largest eigenvalue of the quadratic form of the Slutsky matrix is used to bound violations of the weak axiom. The sizes of the violations of either Slutsky condition are used to bound the distance between the given demand function and approximating functions that satisfy that Slutsky condition exactly.
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|Date of creation:||1991|
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