Measuring rationality with the minimum cost of revealed preference violations

Mark Dean, Daniel Martin

Research output: Contribution to journalArticle

16 Scopus citations

Abstract

We introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large, balanced panel of household level consumption data. This new measure, the minimum cost index, is the minimum cost of breaking all revealed preference cycles found in choices from budget sets. Unlike existing measures of rationality, it responds to both the number and severity of revealed preference violations.

Original languageEnglish (US)
Pages (from-to)524-534
Number of pages11
JournalReview of Economics and Statistics
Volume98
Issue number3
DOIs
StatePublished - Jul 1 2016

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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