Revealed preference with limited consideration
We derive revealed preference tests for models where individuals use consideration sets to simplify their consumption problem. Our basic test provides necessary and sufficient conditions for consistency of observed choices with the existence of consideration set restrictions. The same conditions can also be derived from a model in which the consideration set formation is endogenous and based on subjective, unconstrained beliefs about the prices. By imposing restrictions on these subjective beliefs, we obtain additional refined revealed preference tests. We illustrate and compare the performance of our tests by means of a dataset on household consumption choices.
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- A. Fostel & H. Scarf & M. Todd, 2004.
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- Timothy K. M. Beatty & Ian A. Crawford, 2011. "How Demanding Is the Revealed Preference Approach to Demand?," American Economic Review, American Economic Association, vol. 101(6), pages 2782-2795, October.
- Tim Beatty & Ian Crawford, 2010. "How demanding is the revealed preference approach to demand," CeMMAP working papers CWP17/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 419-425. Full references (including those not matched with items on IDEAS)
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