Testing for Utility Maximization with Error and the Loss of Power

Heufer Jan
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Heufer Jan: TU Dortmund,Dortmund, Germany

German Economic Review, 2012, vol. 13, issue 2, 161-173

Abstract: A procedure is suggested to decide whether or not to treat a consumer who violates the Generalized Axiom of Revealed Preference as ‘close enough’ to utility maximization. It is based on the reduction of the power the test has against random behaviour. It can also be used to compare different efficiency indices.

Keywords: Consumer choice; efficiency index; GARP; nonparametric tests; test power; revealed preference (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1111/j.1468-0475.2011.00545.x

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