Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index
Pawel Dziewulski ()
Working Paper Series from Department of Economics, University of Sussex Business School
Critical cost-efficiency index (or CCEI), proposed in Afriat (1973) and Varian (1990), is one of the most commonly used measures of departures from rationality. We show that this index is equivalent to a particular notion of the just-noticeable difference, that is, a measure of dissimilarity between alternatives that is sufficient for the agent to tell them apart. Therefore, we show that CCEI evaluates the consumer's cognitive inability to discriminate among options.
Keywords: utility maximisation; generalised axiom of revealed preference; critical costefficiency index; interval order; just-noticeable difference (search for similar items in EconPapers)
JEL-codes: C14 C60 C61 D11 D12 (search for similar items in EconPapers)
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Journal Article: Just-noticeable difference as a behavioural foundation of the critical cost-efficiency index (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:0519
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