Testing Search Theory

John Hey

The Manchester School of Economic & Social Studies, 1993, vol. 61, issue 1, 82-94

Abstract: This paper reports on the results of absolute and comparative tests, using experimentally-generated data involving 200 subjects and the expenditure of some 1,500 British pounds, of the economic theory of search behavior (built on Subjective Expected Utility Theory (SEUT) foundations). It is found that the theory fail s the absolute tests, but passes--with one interesting exception--the comparative tests. This indicates that individuals' behavior departs from the optimal in absolute terms, but that it changes in response to parametric changes in the way predicted by the optimality theory (except for the one exception). These findings shed light on the apparently paradoxical conjunction of the failure of SEUT as a predictive theory and the success of conventional econometric tests of theories built on the foundations of SEUT. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:61:y:1993:i:1:p:82-94

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