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Parametric Recoverability of Preferences

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  • Halevy, Yoram
  • Persitz, Dotan
  • Zrill, Lanny

Abstract

We bring revealed preference theory to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices. The paper investigates two measures for the incompatibility between the revealed preference relation implied by choices and the ranking induced by the proposed parametric preferences. We provide a novel characterization of several well-known inconsistency indices through these incompatibility measures. This allows a researcher to analyze both consistent and inconsistent choices, by decomposing an incompatibility measure into inconsistency and misspecification indices.

Suggested Citation

  • Halevy, Yoram & Persitz, Dotan & Zrill, Lanny, 2012. "Parametric Recoverability of Preferences," Microeconomics.ca working papers yoram_halevy-2012-20, Vancouver School of Economics, revised 28 Aug 2015.
    • Handle: RePEc:ubc:pmicro:yoram_halevy-2012-20
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    File URL: http://faculty.arts.ubc.ca/yhalevy/GARP_HPZ.pdf
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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. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Breitmoser, Yves & Vorjohann, Pauline, 2018. "Welfare-Based Altruism," Rationality and Competition Discussion Paper Series 89, CRC TRR 190 Rationality and Competition.
    8. Miguel Costa-Gomes & Carlos Cueva & Georgios Gerasimou & Matus Tejiscak, 2014. "Choice, Deferral and Consistency," Discussion Paper Series, School of Economics and Finance 201416, School of Economics and Finance, University of St Andrews, revised 09 Jan 2019.
    9. 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.
    10. repec:eee:jetheo:v:179:y:2019:i:c:p:275-311 is not listed on IDEAS
    11. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Khushboo Surana, 2018. "Revealed Preference Analysis with Normal Goods: Application to Cost of Living Indices," Working Papers ECARES 2018-08, ULB -- Universite Libre de Bruxelles.
    12. Heufer, Jan, 2014. "Nonparametric comparative revealed risk aversion," Journal of Economic Theory, Elsevier, vol. 153(C), pages 569-616.
    13. Laurens Cherchye & Sam Cosaert & Thomas Demuynck & Bram De Rock, 2017. "Group Consumption with Caring Individuals," Working Papers ECARES ECARES 2017-45, ULB -- Universite Libre de Bruxelles.
    14. 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.
    15. repec:eee:jeborg:v:157:y:2019:i:c:p:602-614 is not listed on IDEAS
    16. Jan Heufer & Per Hjertstrand, 2015. "Homothetic Efficiency and Test Power: A Non-Parametric Approach," Tinbergen Institute Discussion Papers 15-064/I, Tinbergen Institute.
    17. Federico Echenique, 2019. "New developments in revealed preference theory: decisions under risk, uncertainty, and intertemporal choice," Papers 1908.07561, arXiv.org.
    18. Paolo Giovanni Piacquadio, 2017. "A Fairness Justification of Utilitarianism," Econometrica, Econometric Society, vol. 85, pages 1261-1276, July.
    19. 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.
    20. 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.
    21. Geoffroy de Clippel & Kareen Rozen, 2018. "Consumer Theory with Misperceived Tastes," Working Papers 2018-10, Brown University, Department of Economics.
    22. repec:spr:series:v:9:y:2018:i:4:d:10.1007_s13209-018-0178-0 is not listed on IDEAS

    More about this item

    Keywords

    Revealed Preference; Recoverability of Preferences; GARP; inconsistency; incompatibility;

    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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