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Approximately Rational Consumer Demand

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  • Michael Jerison
  • David Jerison

Abstract

We define measures of violations of Slutsky symmetry and negative semidefiniteness and relate them to measures of revealed preference inconsistencies exhibited by nonoptimizing demand behavior. The degree of Slutsky asymmetry is shown to restrict the rate at which real income can rise everywhere along smooth loops in income and price space. The largest eigenvalue of the quadratic form of the Slutsky matrix is used to bound violations of the weak axiom. The sizes of the violations of either Slutsky condition are used to bound the distance between the given demand function and approximating functions that satisfy that Slutsky condition exactly.
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Suggested Citation

  • Michael Jerison & David Jerison, 1991. "Approximately Rational Consumer Demand," Discussion Papers 92-02, University at Albany, SUNY, Department of Economics.
    • Handle: RePEc:nya:albaec:92-02
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    References listed on IDEAS

    as
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    Cited by:

    1. Aguiar, Victor H. & Serrano, Roberto, 2017. "Slutsky matrix norms: The size, classification, and comparative statics of bounded rationality," Journal of Economic Theory, Elsevier, vol. 172(C), pages 163-201.
    2. M. Ali Khan & Edward E. Schlee, 2016. "On Lionel McKenzie's 1957 intrusion into 20th‐century demand theory," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(2), pages 589-636, May.
    3. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    4. Victor H. Aguiar & Roberto Serrano, 2013. "Slutsky Matrix Norms and the Size of Bounded Rationality," Working Papers 2013-16, Brown University, Department of Economics.
    5. Zheng Fang & Juwon Seo, 2019. "A Projection Framework for Testing Shape Restrictions That Form Convex Cones," Papers 1910.07689, arXiv.org, revised Sep 2021.
    6. Russell, Thomas, 1997. "How quasi-rational are you?: A behavioral interpretation of a two form which measures non-integrability of a system of demand equations," Economics Letters, Elsevier, vol. 56(2), pages 181-186, October.
    7. Michael Jerison, 2001. "Demand Dispersion, Metonymy and Ideal Panel Data," Discussion Papers 01-11, University at Albany, SUNY, Department of Economics.

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    Keywords

    Consumption; Demand;

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