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Power Against Random Expenditure Allocation for Revealed Preference Tests

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Abstract

This paper proposes new power indices for revealed preference tests. The indices are based on a model of irrational consumption behavior where the consumer randomly allocates a certain fraction of expenditure. The methods allow a researcher to trace out the entire power curve against random expenditure allocation. The power indices are illustrated on altruistic choices in experimental data.

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  • Hjertstrand, Per, 2019. "Power Against Random Expenditure Allocation for Revealed Preference Tests," Working Paper Series 1309, Research Institute of Industrial Economics, revised 30 Apr 2021.
    • Handle: RePEc:hhs:iuiwop:1309
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    1. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-598, October.
    2. 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.
    3. Mark Dean & Daniel Martin, 2016. "Measuring Rationality with the Minimum Cost of Revealed Preference Violations," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 524-534, July.
    4. Demuynck, Thomas & Hjertstrand, Per, 2019. "Samuelson's Approach to Revealed Preference Theory: Some Recent Advances," Working Paper Series 1274, Research Institute of Industrial Economics.
    5. Jan Heufer, 2014. "Generating Random Optimising Choices," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 295-305, October.
    6. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
    7. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
    8. 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.
    9. Varian, Hal R., 1985. "Non-parametric analysis of optimizing behavior with measurement error," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 445-458.
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    Cited by:

    1. Hjertstrand, Per, 2022. "Nonparametric Analysis of the Mixed-Demand Model," Working Paper Series 1430, Research Institute of Industrial Economics.

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    More about this item

    Keywords

    GARP; Power; Revealed preference;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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