Revealed Preference with Limited Consideration

Thomas Demuynck, Christian Seel

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Abstract

We derive revealed preference tests for models where individuals use consideration sets to simplify their consumption problem. Our basic test provides necessary and sufficient conditions for consistency of observed choices with the existence of consideration set restrictions. The same conditions can also be derived from a model in which the consideration set formation is endogenous and based on subjective prices. By imposing restrictions on these subjective prices, we obtain additional refined revealed preference tests. We illustrate and compare the performance of our tests by means of a dataset on household consumption choices.

Original languageEnglish
Pages (from-to)102-131
Number of pages30
JournalAmerican Economic Journal-Microeconomics
Volume10
Issue number1
Early online date2017
DOIs
Publication statusPublished - Feb 2018

Keywords

  • REFERENCE PRICE RESEARCH
  • GOODNESS-OF-FIT
  • CONSIDERATION SETS
  • COLLECTIVE MODEL
  • AFRIATS THEOREM
  • EMPIRICAL TESTS
  • CONSUMPTION
  • CHOICE
  • BEHAVIOR
  • SEARCH

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