IDEAS home Printed from https://ideas.repec.org/p/zbw/rwirep/69.html
   My bibliography  Save this paper

A Geometric Measure for the Violation of Utility Maximization

Author

Listed:
  • Heufer, Jan

Abstract

Revealed Preference offers nonparametric tests for whether consumption observations can be rationalized by a utility function. If a consumer is inconsistent with GARP, we might need a measure for the severity of inconsistency. One widely used measure is the Afriat efficiency index (AEI). We propose a new measure based on the extent to which the indifference surfaces intersect the budget hyperplanes. The measure is intuitively appealing and, as a cutoff-rule evaluated by Monte Carlo experiments, performs very well compared to the AEI. The results suggest that the new measure is better suited to capture small deviations from utility maximation.

Suggested Citation

  • Heufer, Jan, 2008. "A Geometric Measure for the Violation of Utility Maximization," Ruhr Economic Papers 69, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:69
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/26834/1/582188482.PDF
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mattei, Aurelio, 2000. "Full-scale real tests of consumer behavior using experimental data," Journal of Economic Behavior & Organization, Elsevier, vol. 43(4), pages 487-497, December.
    2. Swofford, James L & Whitney, Gerald A, 1987. "Nonparametric Tests of Utility Maximization and Weak Separability for Consumption, Leisure and Money," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 458-464, August.
    3. Fleissig, Adrian R & Whitney, Gerald A, 2003. "A New PC-Based Test for Varian's Weak Separability Conditions," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 133-144, January.
    4. Bronars, Stephen G, 1987. "The Power of Nonparametric Tests of Preference Maximization [The Nonparametric Approach to Demand Analysis]," Econometrica, Econometric Society, vol. 55(3), pages 693-698, May.
    5. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
    6. Douglas M. Gale & Shachar Kariv & Syngjoo Choi & Raymond Fisman, 2007. "Revealing Preferences Graphically: An Old Method Gets a New Tool Kit," American Economic Review, American Economic Association, vol. 97(2), pages 153-158, May.
    7. Gross, John, 1995. "Testing Data for Consistency with Revealed Preference," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 701-710, November.
    8. Knoblauch, Vicki, 1992. "A Tight Upper Bound on the Money Metric Utility Function," American Economic Review, American Economic Association, vol. 82(3), pages 660-663, June.
    9. Famulari, Melissa, 1995. "A Household-Based, Nonparametric Test of Demand Theory," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 372-382, May.
    10. McMillan, Melville L & Amoako-Tuffour, Joe, 1988. "An Examination of Preferences for Local Public Sector Outputs," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 45-54, February.
    11. Sippel, Reinhard, 1997. "An Experiment on the Pure Theory of Consumer's Behaviour," Economic Journal, Royal Economic Society, vol. 107(444), pages 1431-1444, September.
    12. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
    13. Varian, Hal R., 1985. "Non-parametric analysis of optimizing behavior with measurement error," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 445-458.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Heufer, Jan & Hjertstrand, Per, 2019. "Homothetic preferences revealed," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 602-614.
    2. Jan Heufer & Per Hjertstrand, 2015. "Homothetic Efficiency and Test Power: A Non-Parametric Approach," Tinbergen Institute Discussion Papers 15-064/I, Tinbergen Institute.
    3. Kohei Shiozawa, 2015. "Note on goodness-of-fit measures for the revealed preference test: The computational complexity of the minimum cost index," Economics Bulletin, AccessEcon, vol. 35(4), pages 2455-2461.
    4. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    5. Jim Engle-Warnick & Natalia Mishagina, 2014. "Insensitivity to Prices in a Dictator Game," CIRANO Working Papers 2014s-19, CIRANO.
    6. Federico Echenique & Sangmok Lee & Matthew Shum, 2011. "The Money Pump as a Measure of Revealed Preference Violations," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1201-1223.
    7. Mia Lu & Nick Netzer, 2022. "The swaps index for consumer choice," ECON - Working Papers 418, Department of Economics - University of Zurich, revised May 2023.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:rwirep:0069 is not listed on IDEAS
    2. Jan Heufer, 2008. "A Geometric Measure for the Violation of Utility Maximization," Ruhr Economic Papers 0069, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. James Andreoni & William Harbaugh, 2005. "Power Indicies for Revealed Preference Tests," Levine's Bibliography 784828000000000181, UCLA Department of Economics.
    4. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    5. Jim Engle-Warnick & Natalia Mishagina, 2014. "Insensitivity to Prices in a Dictator Game," CIRANO Working Papers 2014s-19, CIRANO.
    6. Heufer, Jan, 2014. "Nonparametric comparative revealed risk aversion," Journal of Economic Theory, Elsevier, vol. 153(C), pages 569-616.
    7. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, December.
    8. Fleissig, Adrian R. & Whitney, Gerald A., 2008. "A nonparametric test of weak separability and consumer preferences," Journal of Econometrics, Elsevier, vol. 147(2), pages 275-281, December.
    9. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.
    10. Marc-Arthur Diaye & Michal Wong-Urdanivia, 2006. "A Simple Test of Richter-Rationality," Documents de recherche 06-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    11. Bergh , Andreas & Nilsson, Therese, 2008. "Do economic liberalization and globalization increase income inequality?," Working Papers 2008:12, Lund University, Department of Economics.
    12. Ian Crawford & Bram De Rock, 2014. "Empirical Revealed Preference," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 503-524, August.
    13. Marc-Arthur Diaye & François Gardes & Christophe Starzec, 2010. "GARP violation, Economic Environment Distortions and Shadow Prices: Evidence from Household Expenditure Panel Data," Post-Print halshs-00449463, HAL.
    14. Marc-Arthur Diaye & Michal Wong-Urdanivia, 2005. "A simple test of Richter-rationality," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084390, HAL.
    15. Alcantud, José Carlos R. & Matos, Daniel L. & Palmero, Carlos R., 2009. "Goodness of fit in optimizing consumer's model," MPRA Paper 20134, University Library of Munich, Germany.
    16. Marc-Arthur Diaye & Michal Wong-Urdanivia, 2005. "A simple test of Richter-rationality," Post-Print halshs-00084390, HAL.
    17. 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.
    18. Adena, Maja & Huck, Steffen & Rasul, Imran, 2017. "Testing consumer theory: evidence from a natural field experiment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(2), pages 89-108.
    19. Jan Heufer & Per Hjertstrand, 2015. "Homothetic Efficiency and Test Power: A Non-Parametric Approach," Tinbergen Institute Discussion Papers 15-064/I, Tinbergen Institute.
    20. Jan Heufer, 2014. "A geometric approach to revealed preference via Hamiltonian cycles," Theory and Decision, Springer, vol. 76(3), pages 329-341, March.
    21. Eileen Tipoe & Abi Adams & Ian Crawford, 2022. "Revealed preference analysis and bounded rationality [Consume now or later? Time inconsistency, collective choice and revealed preference]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 313-332.

    More about this item

    Keywords

    Consumer choice; efficiency index; GARP; nonparametric tests; revealed preference;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:rwirep:69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/rwiesde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.