Stochastic revealed preferences with measurement error
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Publication:5048671
DOI10.1093/RESTUD/RDAA067zbMATH Open1502.91018arXiv1810.05287OpenAlexW3121991014MaRDI QIDQ5048671FDOQ5048671
Authors: Victor H. Aguiar, Nail Kashaev 
Publication date: 16 November 2022
Published in: Review of Economic Studies (Search for Journal in Brave)
Abstract: A long-standing question about consumer behavior is whether individuals' observed purchase decisions satisfy the revealed preference (RP) axioms of the utility maximization theory (UMT). Researchers using survey or experimental panel data sets on prices and consumption to answer this question face the well-known problem of measurement error. We show that ignoring measurement error in the RP approach may lead to overrejection of the UMT. To solve this problem, we propose a new statistical RP framework for consumption panel data sets that allows for testing the UMT in the presence of measurement error. Our test is applicable to all consumer models that can be characterized by their first-order conditions. Our approach is nonparametric, allows for unrestricted heterogeneity in preferences, and requires only a centering condition on measurement error. We develop two applications that provide new evidence about the UMT. First, we find support in a survey data set for the dynamic and time-consistent UMT in single-individual households, in the presence of emph{nonclassical} measurement error in consumption. In the second application, we cannot reject the static UMT in a widely used experimental data set in which measurement error in prices is assumed to be the result of price misperception due to the experimental design. The first finding stands in contrast to the conclusions drawn from the deterministic RP test of Browning (1989). The second finding reverses the conclusions drawn from the deterministic RP test of Afriat (1967) and Varian (1982).
Full work available at URL: https://arxiv.org/abs/1810.05287
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Cited In (14)
- Revealed statistical consumer theory
- Distribution of preferences and measurement errors in a disaggregated expenditure system
- A Test for Anchoring and Yea-Saying in Experimental Consumption Data
- Prices, profits, proxies, and production
- Computing revealed preference goodness-of-fit measures with integer programming
- Intertemporal consumption with anticipating, remembering, and experiencing selves
- Assessing consumer demand with noisy neural measurements
- Testing utility maximization with measurement errors in the data
- Increasing the external validity of social preference games by reducing measurement error
- A Measurement Error Approach for Modeling Consumer Risk Preference
- Estimation of the misreporting models using micro-data sets derived from the consumer expenditure survey: The gap between macro and micro economic statistics on consumer durables
- Non-rationalizable individuals and stochastic rationalizability
- Correcting for random budgets in revealed preference experiments
- A COMPARISON OF TWO METHODS FOR TESTING THE UTILITY MAXIMIZATION HYPOTHESIS WHEN QUANTITY DATA ARE MEASURED WITH ERROR
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