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Assessing Misspecification and Aggregation for Structured Preferences

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Abstract

Applied research often tolerates misspecification in order to reach informative conclusions. We focus on how the degree of misspecification varies with the level of aggregation of data for uasilinear utility models. We present aggregation results formalizing that the model cannot get worse when aggregating. Using scanner data, we find that while all individuals are inconsistent with a quasilinear utility model, we cannot refute the hypothesis that a representative agent is a quasilinear utility maximizer. This provides evidence that deviations from a quasilinear model may average away.

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  • Roy Allen & John Rehbeck, 2019. "Assessing Misspecification and Aggregation for Structured Preferences," University of Western Ontario, Departmental Research Report Series 20194, University of Western Ontario, Department of Economics.
    • Handle: RePEc:uwo:uwowop:20194
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    2. Roy Allen & John Rehbeck, 2021. "Measuring rationality: percentages vs expenditures," Theory and Decision, Springer, vol. 91(2), pages 265-277, September.

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