Parametric recoverability of preferences

Yoram Halevy, Dotan Persitz, Lanny Zrill

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

Abstract

Revealed preference theory is brought to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices. We propose measures of the incompatibility between the revealed preference ranking implied by choices and the ranking induced by the considered parametric preferences. These incompatibility measures are proven to characterize well-known inconsistency indices. We advocate a recovery approach that is based on such incompatibility measures and demonstrate its applicability for misspecification measurement and model selection. Using an innovative experimental design, we empirically substantiate that the proposed revealed-preference-based method predicts choices significantly better than a standard distance-based method.

Original languageEnglish
Pages (from-to)1558-1593
Number of pages36
JournalJournal of Political Economy
Volume126
Issue number4
DOIs
StatePublished - 1 Aug 2018

Funding

FundersFunder number
Henry Crown Institute for Business Research in Israel
Social Sciences and Humanities Research Council of Canada435-2012-0577, 410-2009-1062
Irish Research Council for the Humanities and Social Sciences
Israel Science Foundation1390/14

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