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What types are there?

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  • COSAERT Sam

Abstract

Preferences differ in the population, and this heterogeneity may not be adequately described by observed characteristics and additive error terms. As a first contribution, this study shows that preference heterogeneity can be represented graphically by means of violations of the Weak Axiom of Revealed Preference (WARP), and that computing the minimum number of partitions necessary to break all WARP violations in the sample is equivalent to computing the chromatic number of this graph. Second, the study builds the bridge between revealed preference theory and cluster analysis to assign individuals to these partitions (i.e. preference types). The practical methods are applied to Dutch labour supply data, to recover reservation wages of individuals who belong to particular preference types.

Suggested Citation

  • COSAERT Sam, 2017. "What types are there?," LISER Working Paper Series 2017-01, Luxembourg Institute of Socio-Economic Research (LISER).
    • Handle: RePEc:irs:cepswp:2017-01
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    Cited by:

    1. Laurens Cherchye & Dieter Saelens & Reha Tuncer, 2024. "From unobserved to observed preference heterogeneity: a revealed preference methodology," Economica, London School of Economics and Political Science, vol. 91(363), pages 996-1022, July.
    2. Khushboo Surana, 2022. "How different are we? Identifying the degree of revealed preference heterogeneity," Discussion Papers 22/09, Department of Economics, University of York.
    3. Smeulders, Bart & Crama, Yves & Spieksma, Frits C.R., 2019. "Revealed preference theory: An algorithmic outlook," European Journal of Operational Research, Elsevier, vol. 272(3), pages 803-815.
    4. Dieter Saelens, 2022. "Unitary or collective households? A nonparametric rationality and separability test using detailed data on consumption expenditures and time use," Empirical Economics, Springer, vol. 62(2), pages 637-677, February.
    5. Jan Niederreiter, 2023. "Broadening Economics in the Era of Artificial Intelligence and Experimental Evidence," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(1), pages 265-294, March.

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    More about this item

    Keywords

    preference heterogeneity; chromatic number; revealed preference; labour supply; constrained clustering;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation

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