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Parametric Recoverability of Preferences

Listed author(s):
  • Halevy, Yoram
  • Persitz, Dotan
  • Zrill, Lanny

Revealed preference theory is brought to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices. We propose measures of the incompatibility between the revealed preference ranking implied by choices and the ranking induced by the considered parametric preferences. These incompatibility measures are proven to characterize well-known inconsistency indices. We advocate a recovery approach that is based on such incompatibility measures, and demonstrate its applicability for misspecification measurement and model selection. Using an innovative experimental design we empirically substantiate that the proposed revealed-preference-based method predicts choices significantly better than a standard distance-based method.

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File URL: http://faculty.arts.ubc.ca/yhalevy/PRP.pdf
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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number yoram_halevy-2016-11.

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Length: 90 pages
Date of creation: 02 Nov 2016
Date of revision: 02 Nov 2016
Publication status: Forthcoming in Journal of Political Economy
Handle: RePEc:ubc:pmicro:yoram_halevy-2016-11
Contact details of provider: Web page: http://www.economics.ubc.ca/

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