Resource title

A geometric measure for the violation of utility maximization

Resource image

image for OpenScout resource :: A geometric measure for the violation of utility maximization

Resource description

Revealed Preference offers nonparametric tests for whether consumption observations can be rationalized by a utility function. If a consumer is inconsistent with GARP, we might need a measure for the severity of inconsistency. One widely used measure is the Afriat efficiency index (AEI). We propose a new measure based on the extent to which the indifference surfaces intersect the budget hyperplanes. The measure is intuitively appealing and, as a cutoff-rule evaluated by Monte Carlo experiments, performs very well compared to the AEI. The results suggest that the new measure is better suited to capture small deviations from utility maximation.

Resource author

Jan Heufer

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26834

Resource license

Adapt according to the presented license agreement and reference the original author.