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Extent of Irrationality of the Consumer: Combining the Critical Cost Eciency and Houtman Maks Indices

Matej Opatrny

No 2018/11, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: We combine the Critical Cost Efficiency Index and the Houtman Maks Index to evaluate the consistency of subjects in a set of choice data from budgets. We show that by simply allowing subjects for one significant mistake (by removing the worst observation), the mean Critical Cost Efficiency Index in a set of choices from an online experiment with the general population increases by 6 percentage points. Furthermore, we find that by excluding the worst observation per subject, the fraction of subjects wasting 5% or less of their budget increases from 45% to 64%. The highest improvement in terms of efficiency can be seen among retired and 65+ aged subjects which indicates that their low level of effciency is largely due to a single mistake.

Keywords: Critical Cost Efficiency Index; Houtman Maks Index; Socio-economic groups; observation (search for similar items in EconPapers)
JEL-codes: D12 D14 D81 D83 D91 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2018-04, Revised 2018-04
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Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2018_11

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