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http://hdl.handle.net/10419/26834
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| Title: | | A geometric measure for the violation of utility maximization  |
| Authors: | | Heufer, Jan |
| Issue Date: | | 2008 |
| Series/Report no.: | | Ruhr economic papers 69 |
| Abstract: | | Revealed Preference offers nonparametric tests for whether consumption observations can be rationalized by a utility function. If a consumer is inconsistent with GARP, we might need a measure for the severity of inconsistency. One widely used measure is the Afriat efficiency index (AEI). We propose a new measure based on the extent to which the indifference surfaces intersect the budget hyperplanes. The measure is intuitively appealing and, as a cutoff-rule evaluated by Monte Carlo experiments, performs very well compared to the AEI. The results suggest that the new measure is better suited to capture small deviations from utility maximation. |
| Subjects: | | Consumer choice efficiency index GARP nonparametric tests revealed preference |
| JEL: | | C14 C60 D11 D12 |
| ISBN: | | 978-3-86788-073-2 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des RWI Ruhr Economic Papers, RWI
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