Are Consumers (Approximately) Rational? Shifting the Burden of Proof

Laurens Cherchye; Thomas Demuynck; Bram De Rock; Joshua Lanier

doi:10.1162/rest_a_01360

Are Consumers (Approximately) Rational? Shifting the Burden of Proof

Laurens Cherchye¹; Thomas Demuynck²; Bram De Rock³; Joshua Lanier⁴

¹ KU Leuven · ² Université Libre de Bruxelles · ³ Université Libre de Bruxelles and University of Leuven (KU Leuven) · ⁴ Southwestern University of Finance and Economics, Liulin Campus (Main Campus)

The Review of Economics and Statistics 2025 open access

Abstract We present a statistical test for the hypothesis of (approximate) utility maximization on the basis of nonparametric revealed preference conditions. We take as null hypothesis that the consumer behaves randomly, and we reject this hypothesis only if the data provides sufficient evidence to support the alternative hypothesis of approximate utility maximization. Our statistical test uses a permutation method to operationalize the principle of random consumption behavior. We show that our test (i) is valid for any sample size under the null and (ii) has an asymptotic power of one. We also provide simulated power results and two empirical applications.

DOI: 10.1162/rest_a_01360
Volume: 107 (6)
Pages: 1652-1666
Language: en
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