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How different are we? Identifying the degree of revealed preference heterogeneity

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  • Khushboo Surana

Abstract

We propose a nonparametric method to identify the degree of heterogeneity in individual preferences. Using preference information revealed by observed behavior, the method estimates interpersonal preference heterogeneity as the Kemeny distance between individual preference rankings. Using data from the U.S. Panel Study of Income Dynamics (PSID), we derive bounds on the distance-based heterogeneity measure, which we then use to group individuals with similar preferences. We demonstrate that constructing such preference types can substantially strengthen empirical analysis by (i) producing more accurate demand predictions, (ii) improving welfare analysis, and (iii) detecting functional misspecifications in parametric methodologies.

Suggested Citation

  • Khushboo Surana, 2025. "How different are we? Identifying the degree of revealed preference heterogeneity," Discussion Papers 25/03, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:25/03
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    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
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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