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Mutually Consistent Revealed Preference Demand Predictions

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  • Abi Adams

Abstract

Revealed preference restrictions are increasingly used to predict demand behavior at new budgets of interest and as shape restrictions in nonparametric estimation exercises. However, the restrictions imposed are not sufficient for rationality when predictions are made at multiple budgets. I highlight the non-convexities in the set of predictions that arise when making multiple predictions. I develop a mixed integer programming characterization of the problem that can be used to impose rationality on multiple predictions. The approach is applied to the UK Family Expenditure Survey to recover rational demand predictions with substantially reduced computational resources compared to known alternatives.

Suggested Citation

  • Abi Adams, 2020. "Mutually Consistent Revealed Preference Demand Predictions," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 42-74, February.
    • Handle: RePEc:aea:aejmic:v:12:y:2020:i:1:p:42-74
    DOI: 10.1257/mic.20150216
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    Cited by:

    1. Joshua Lanier & John K. -H. Quah, 2024. "Goodness-of-fit and utility estimation: what's possible and what's not," Papers 2405.08464, arXiv.org.
    2. Thomas Demuynck & John Rehbeck, 2023. "Computing revealed preference goodness-of-fit measures with integer programming," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1175-1195, November.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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