Testing rationality without restricting heterogeneity

Kawaguchi, Kohei

doi:10.1016/j.jeconom.2016.11.003

Cited by 15 publications

(25 citation statements)

References 21 publications

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“…Since the condition placed on these pairs is easy to test, warsp allows for a polynomial time test. Heufer (2011) and Kawaguchi (2016) build further on this work. Heufer provides a sufficient condition for rationalizability in terms of stochastic preferences.…”

Section: Revealed Stochastic Preferencementioning

confidence: 78%

“…Heufer provides a sufficient condition for rationalizability in terms of stochastic preferences. Kawaguchi (2016) proposes the strong axiom of revealed stochastic preference (sarsp), a necessary condition for rationalizability by stochastic preferences. Both of these conditions seem difficult to test, requiring in the case of Heufer a feasible solution to a linear program with an exponential number of constraints and variables.…”

Section: Revealed Stochastic Preferencementioning

confidence: 99%

See 1 more Smart Citation

Revealed preference theory: An algorithmic outlook

Smeulders

Crama

Spieksma

2019

European Journal of Operational Research

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Revealed preference theory is a domain within economics that studies rationalizability of behavior by (certain types of) utility functions. Given observed behavior in the form of choice data, testing whether certain conditions are satisfied gives rise to a variety of computational problems that can be analyzed using operations research techniques. In this survey, we provide an overview of these problems, their theoretical complexity, and available algorithms for tackling them. We focus on consumer choice settings, in particular individual choice, collective choice and stochastic choice settings.

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Section: Revealed Stochastic Preferencementioning

confidence: 78%

Section: Revealed Stochastic Preferencementioning

confidence: 99%

Revealed preference theory: An algorithmic outlook

Smeulders

Crama

Spieksma

2019

European Journal of Operational Research

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“…This is explored by Hoderlein and Stoye () in a setting that is otherwise ours and also on the same data. Kawaguchi () tests a logically intermediate condition, again on the same data. A different test of necessary conditions was proposed by Hoderlein (), who shows that certain features of rationalizable individual demand, like adding up and standard properties of the Slutsky matrix, are inherited by average demand under weak conditions.…”

Section: Related Literaturementioning

confidence: 99%

“…Here, the problem of computing explicit moment inequalities is researched but unresolved (e.g., see Doignon and Rexhep () and references therein), and we believe that our test is of interest for that literature. Finally, Hoderlein and Stoye () only compare two budgets at a time, and Kawaguchi () tests necessary conditions that are directly expressed as moment inequalities. Therefore, inference in both papers is much closer to the aforementioned literature.…”

Section: Related Literaturementioning

confidence: 99%

Nonparametric Analysis of Random Utility Models

Kitamura¹,

Stoye²

2018

Econometrica

110

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This paper develops and implements a nonparametric test of random utility models. The motivating application is to test the null hypothesis that a sample of cross‐sectional demand distributions was generated by a population of rational consumers. We test a necessary and sufficient condition for this that does not restrict unobserved heterogeneity or the number of goods. We also propose and implement a control function approach to account for endogenous expenditure. An econometric result of independent interest is a test for linear inequality constraints when these are represented as the vertices of a polyhedral cone rather than its faces. An empirical application to the U.K. Household Expenditure Survey illustrates computational feasibility of the method in demand problems with five goods.

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“…Hoderlein and Stoye (2014) compute bounds on the size of the population that violates WARP for repeated cross-sectional data. Kitamura and Stoye (2016) address the same question but use SARP as a rationality condition, and Kawaguchi (2017) develops tests to verify various other stochastic axioms of revealed preference. In a similar vein, Hoderlein (2011) and Dette, Hoderlein, and Neumeyer (2016) check whether a population of heterogeneous consumers satisfies the differential Slutsky symmetry or negativity restrictions.…”

mentioning

confidence: 99%

Bounding Counterfactual Demand with Unobserved Heterogeneity and Endogenous Expenditures

2017

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We propose a novel method to predict rational counterfactual demand responses from an observed set of repeated cross-sections. Our method derives bounds on the distribution of counterfactual demands that are consistent with the Weak Axiom of Revealed Preferences without putting any restriction on the preference heterogeneity across consumers. In contrast to existing methods, our method also allows for endogeneity of total expenditures. In addition, the method can readily incorporate restrictions on the income elasticities of the consumption goods, which further enhances its identifying power (i.e. tighter bounds). The method is easy to implement and yields informative bounds on demand, which we illustrate through an application to data drawn from the U.S. Consumer Expenditure Survey (CEX).

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Testing rationality without restricting heterogeneity

Cited by 15 publications

References 21 publications

Revealed preference theory: An algorithmic outlook

Revealed preference theory: An algorithmic outlook

Nonparametric Analysis of Random Utility Models

Bounding Counterfactual Demand with Unobserved Heterogeneity and Endogenous Expenditures

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