How Demanding Is the Revealed Preference Approach to Demand?
Beatty, Timothy K. M., and
Ian A. Crawford. 2011. "How Demanding Is the Revealed Preference Approach to Demand?."
American Economic Review,
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)
Article Full-Text Access
Download Data Set
Beatty, Timothy K. M. (U MN, St Paul)
Crawford, Ian A. (U Oxford)
D11: Consumer Economics: Theory
D12: Consumer Economics: Empirical Analysis