How Demanding Is the Revealed Preference Approach to Demand?
- (pp. 2782-95)
AbstractA 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)
Citation2011. "How Demanding Is the Revealed Preference Approach to Demand?" American Economic Review, 101(6): 2782-95. DOI: 10.1257/aer.101.6.2782
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis