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Nonparametric Analysis of Random Utility Models: Testing

Yuichi Kitamura () and Jörg Stoye
Additional contact information
Yuichi Kitamura: Cowles Foundation, Yale University, http://economics.yale.edu/people/yuichi-kitamura

No 1902, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper develops new tools for the analysis of Random Utility Models (RUM). The leading application is stochastic revealed preference theory, that is, the modeling of aggregate choice behavior in a population characterized by individual rationality and unobserved heterogeneity. We test the null hypothesis that a repeated cross-section of demand data was generated by such a population, without restricting unobserved heterogeneity in any form whatsoever. Equivalently, we empirically test McFadden and Richter's (1991) Axiom of Revealed Stochastic Preference (ARSP, to be defined later), using only nonsatiation and the Strong Axiom of Revealed Preference (SARP) as restrictions on individual level behavior. Doing this is computationally challenging. We provide various algorithms that can be implemented with reasonable computational resources. Also, new tools for statistical inference for inequality restrictions are introduced in order to deal with the high-dimensionality and non-regularity of the problem at hand.

Keywords: Stocastic; rationality (search for similar items in EconPapers)
JEL-codes: C14 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-07
New Economics Papers: this item is included in nep-dcm, nep-ore and nep-upt
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Working Paper: Nonparametric analysis of random utility models: testing (2013) Downloads
Working Paper: Nonparametric Analysis of Random Utility Models: Testing (2013) Downloads
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