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American Economic Review Vol. 101 No. 6 2011

How Demanding Is the Revealed Preference Approach to Demand?

Timothy K. M. Beatty1; Ian Crawford2

1 Department of Applied Economics, University of Minnesota, 317E Classroom Office Building, 1994 Buford Ave., St. Paul, MN 55108, and Institute for Fiscal Studies. · 2 Department of Economics, University of Oxford, Manor Road Building, Manor Road, Oxford, OX1 3UQ, and Institute for Fiscal Studies/cemmap.

Abstract

A well-known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory, or a warning that these conditions are so undemanding that almost anything goes. This paper allows researchers to make this distinction. Our approach uses an axiomatic characterization of a measure of predictive success due to Selten (1991). We illustrate the idea using a panel dataset. The results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory. JEL: D11, D12

DOI
10.1257/aer.101.6.2782
Volume
101
Issue
6
Pages
2782-2795
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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