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Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index

Author

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  • Pawel Dziewulski

    () (Department of Economics, University of Sussex, Brighton, UK)

Abstract

Critical cost-efficiency index (or CCEI), proposed in Afriat (1973) and Varian (1990), is one of the most commonly used measures of departures from rationality. We show that this index is equivalent to a particular notion of the just-noticeable difference, that is, a measure of dissimilarity between alternatives that is sufficient for the agent to tell them apart. Therefore, we show that CCEI evaluates the consumer's cognitive inability to discriminate among options.

Suggested Citation

  • 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.
  • Handle: RePEc:sus:susewp:0519
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    File URL: https://www.sussex.ac.uk/webteam/gateway/file.php?name=wps-05-2019.pdf&site=24
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    More about this item

    Keywords

    utility maximisation; generalised axiom of revealed preference; critical costefficiency index; interval order; just-noticeable difference;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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