Non-parametric bounds for non-convex preferences

Halevy, Yoram; Persitz, Dotan; Zrill, Lanny

doi:10.1016/j.jebo.2017.02.006

Cited by 8 publications

(4 citation statements)

References 11 publications

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“…20 Second, in portfolio choice settings, concavity of u is often imposed because (along with other assumptions on ϕ ) it ensures the convexity of the agent's preference over contingent consumption bundles (equivalently, the quasiconcavity of the utility function defined on ℝ + s -); this in turn facilitates the mathematical analysis of portfolio choice. However, as emphasized by Halevy, Persitz, and Zrill (2017), there is a distinction between out-of-sample predictions made with and without the convexity property, and the sharper conclusions obtained by imposing this property can be misleading. Lastly, departures from the concavity of u have been specifically exploited to explain certain specific empirical phenomena; an early paper of that type is Friedman and Savage (1948).…”

Section: The Grid Methodsmentioning

confidence: 99%

Revealed Preferences over Risk and Uncertainty

Polisson

Quah

Renou

2020

American Economic Review

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We develop a nonparametric method, called Generalized Restriction of Infinite Domains (GRID), for testing the consistency of budgetary choice data with models of choice under risk and under uncertainty. Our test can allow for risk-loving and elation-seeking attitudes, or it can require risk aversion. It can also be used to calculate, via Afriat’s efficiency index, the magnitude of violations from a particular model. We evaluate the performance of various models under risk (expected utility, disappointment aversion, rank-dependent utility, and stochastically monotone utility) using data collected from several recent portfolio choice experiments. (JEL C14, D11, D12, D81)

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Section: The Grid Methodsmentioning

confidence: 99%

Revealed Preferences over Risk and Uncertainty

Polisson

Quah

Renou

2020

American Economic Review

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“…In Section 4.1 we propose two loss functions that measure the incompati-12 Varian (1982) builds on the celebrated Afriat (1967) theorem to construct non parametric bounds that partially identify the utility function, assuming that preferences are convex (see Halevy et al (2016)). His approach has been extended and developed in Blundell et al (2003Blundell et al ( , 2008) (see also Section 3.2 in Cherchye et al (2009)).…”

Section: Parametric Recoverabilitymentioning

confidence: 99%

Parametric Recoverability of Preferences

Halevy,

Persitz,

Zrill

2018

Journal of Political Economy

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115

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Revealed preference theory is brought to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices. We propose measures of the incompatibility between the revealed preference ranking implied by choices and the ranking induced by the considered parametric preferences. These incompatibility measures are proven to characterize well-known inconsistency indices. We advocate a recovery approach that is based on such incompatibility measures, and demonstrate its applicability for misspecication measurement and model selection. Using an innovative experimental design we empirically substantiate that the proposed revealed-preference-based method predicts choices signicantly better than a standard distance-based method. * We are grateful to the editor Ali Hortaçsu and anonymous referees for insightful comments and suggestions that signicantly improved this work. We thank Jose Apesteguia,

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“…Finally, Halevy et al (2017) shows that Varian's method to recover preferences under GARP does not apply to nonconvex preferences, and suggests an alternative method based on monotonicity. However, when GARP holds, concavity is not a testable restriction.…”

Section: Related Literaturementioning

confidence: 99%

A Rationalization of the Weak Axiom of Revealed Preference

2020

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We offer a rationalization of the weak axiom of revealed preference (WARP) and of the weak generalized axiom of revealed preference (WGARP) for both finite and infinite data sets of consumer choice. We call it maximin rationalization, in which each pairwise choice is associated with a local utility function. We develop its associated revealed-preference theory. We show that preference recoverability and welfare analysis à la Varian (1982) may not be informative enough when the weak axiom holds but when consumers are not utility maximizers. In addition, we show that counterfactual analysis may fail with WGARP/WARP. We clarify the reasons for these failures and provide new informative bounds for the consumer's true preferences, as well as a new way to perform counterfactual analysis. Finally, by adding the Gorman form and quasilinearity restrictions to the "local" utility functions, we obtain new characterizations of the choices of the Shafer (1974) nontransitive consumer and those choices satisfying the law of demand.

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Non-parametric bounds for non-convex preferences

Cited by 8 publications

References 11 publications

Revealed Preferences over Risk and Uncertainty

Revealed Preferences over Risk and Uncertainty

Parametric Recoverability of Preferences

A Rationalization of the Weak Axiom of Revealed Preference

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