Measuring Rationality with the Minimum Cost of Revealed Preference Violations

Mark Dean; Daniel Martin

doi:10.1162/rest_a_00542

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Measuring Rationality with the Minimum Cost of Revealed Preference Violations

Mark Dean¹; Daniel Martin²

¹ John Brown University · ² Paris School of Economics

The Review of Economics and Statistics 2016

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.

DOI: 10.1162/rest_a_00542
Volume: 98 (3)
Pages: 524-534
Language: en
Export: BibTeX
Sources: openalex crossref