Finite Tests from Functional Characterizations

Charles Gauthier, Raghav Malhotra and Agustin Troccoli Moretti

Papers from arXiv.org

Abstract: Classically, testing whether decision makers belong to specific preference classes involves two main approaches. The first, known as the functional approach, assumes access to an entire demand function. The second, the revealed preference approach, constructs inequalities to test finite demand data. This paper bridges these methods by using the functional approach to test finite data through preference learnability results. We develop a computationally efficient algorithm that generates tests for choice data based on functional characterizations of preference families. We provide these restrictions for various applications, including homothetic and weakly separable preferences, where the latter's revealed preference characterization is provably NP-Hard. We also address choice under uncertainty, offering tests for betweenness preferences. Lastly, we perform a simulation exercise demonstrating that our tests are effective in finite samples and accurately reject demands not belonging to a specified class.

Date: 2022-08, Revised 2024-07
New Economics Papers: this item is included in nep-dcm
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