Working Paper, Brown University, Department of Economics 2013-16
Given any observed demand behavior by means of a demand function, we quantify by how much it departs from rationality. Using a recent elaboration of the "almost implies near" principle, the measure of the gap is the smallest norm of the correcting matrix that would yield a Slutsky matrix with its standard rationality properties (symmetry, singularity, and negative semidefiniteness). A useful classification of departures from rationality is suggested as a result. Variants, examples, and applications are discussed, and illustrations are provided using several bounded rationality models.