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Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index

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  • Matthew Polisson
  • John K. -H. Quah

Abstract

This note explains the equivalence between approximate rationalizability and approximate cost-rationalizability within the context of consumer demand. In connection with these results, we interpret Afriat's (1973) critical cost efficiency index (CCEI) as a measure of approximate rationalizability through cost inefficiency, in the sense that an agent is spending more money than is required to achieve her utility targets.

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  • Matthew Polisson & John K. -H. Quah, 2024. "Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index," Papers 2406.10136, arXiv.org, revised Jul 2024.
    • Handle: RePEc:arx:papers:2406.10136
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    References listed on IDEAS

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