The Money Pump as a Measure of Revealed Preference Violations: a Comment

Laurens Cherchye, Bram De Rock, Bart Smeulders and Frits Spieksma

Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: In a recent and insightful paper, Echenique et al. [4] proposed the Money Pump Index(MPI) as an intuitive measure to evaluate the severity of violations of consumer rationality(defined in terms of revealed preference axioms). For practical applications, they suggest usingthe Mean or Median MPI. In this note, we show that computing these Median and Mean MPIis computationally hard, which makes them impractical in the case of large datasets (including"scanner" datasets as the one used by Echenique et al.). To overcome this problem, we proposeMaximum and Minimum MPIs as easy-to-apply alternatives. These MPIs preserve the intuitionof the Median and Mean MPIs and can be computed efficiently (i.e. in polynomial time). Wealso show the practical usefulness of the Maximum and Minimum MPI through an applicationto the dataset of Echenique et al..

Pages: 9 p.
Date: 2013-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Published by:

Downloads: (external link)
https://dipot.ulb.ac.be/dspace/bitstream/2013/1467 ... SMA-themoneypump.pdf 2013-30-CHERCHYE_DEROCK_SMEULDERS_SPIEKSMA-themoneypump (application/pdf)

Related works:
Journal Article: The Money Pump as a Measure of Revealed Preference Violations: A Comment (2013)
Working Paper: The Money Pump as a Measure of Revealed Preference Violations: A Comment (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eca:wpaper:2013/146734

Ordering information: This working paper can be ordered from
http://hdl.handle.ne ... lb.ac.be:2013/146734

Access Statistics for this paper

More papers in Working Papers ECARES from ULB -- Universite Libre de Bruxelles Contact information at EDIRC.
Bibliographic data for series maintained by Benoit Pauwels ().