Parametric Recoverability of Preferences
We recover approximate parametric preferences from consistent and inconsistent consumer choices. The procedure seeks to utilize revealed preference information contained in choices by minimizing its ranking inconsistency with the proposed parametric preferences. We provide a novel characterization of the Varian Inefficiency Index, generalize it to a goodness-of-fit measure of recovered preferences, and decompose the latter into inconsistency and misspecification measures. This provides a reasonable way to test restrictions on parametric models. An application of the method to the data set constructed by [Kariv2007AER] to study choice under risk suggests more pronounced non-expected utility preferences than previously suggested.
|Date of creation:||30 Jun 2012|
|Date of revision:||16 Aug 2014|
|Contact details of provider:|| Web page: http://www.economics.ubc.ca/|
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