What types are there?

Sam Cosaert

No 2017-01, LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER)

Abstract: Preferences differ in the population, and this heterogeneity may not be adequately described by observed characteristics and additive error terms. As a first contribution, this study shows that preference heterogeneity can be represented graphically by means of violations of the Weak Axiom of Revealed Preference (WARP), and that computing the minimum number of partitions necessary to break all WARP violations in the sample is equivalent to computing the chromatic number of this graph. Second, the study builds the bridge between revealed preference theory and cluster analysis to assign individuals to these partitions (i.e. preference types). The practical methods are applied to Dutch labour supply data, to recover reservation wages of individuals who belong to particular preference types.

Keywords: preference heterogeneity; chromatic number; revealed preference; labour supply; constrained clustering (search for similar items in EconPapers)
JEL-codes: C14 C38 C44 D12 D13 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-01
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (1)

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Journal Article: What Types are There? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:irs:cepswp:2017-01

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