Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26834
Authors: 
Heufer, Jan
Year of Publication: 
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

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