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How demanding is the revealed preference approach to demand

Author

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  • Tim Beatty

    (Institute for Fiscal Studies and University of Minnesota)

  • Ian Crawford

    (Institute for Fiscal Studies and Nuffield College, Oxford)

Abstract

A well known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory, or a warning that these conditions are so undemanding that almost anything goes. This paper allows researchers to make this distinction. Our approach builds on theoretical support in the form of an axiomatic cardinal characterisation of a measure of predictive success due to Selten(1991). We illustrate the idea using a large, nationally representative panel survey of Spanish consumers with broad commodity coverage. The results show that this approach to revealed preference methods can lead us radically to reassess our view of the empirical performance of economic theory.

Suggested Citation

  • Tim Beatty & Ian Crawford, 2010. "How demanding is the revealed preference approach to demand," CeMMAP working papers CWP17/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:17/10
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    File URL: http://cemmap.ifs.org.uk/wps/cwp1710.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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