Revealed Preference with Limited Consideration†

Revealed Preference with Limited Consideration† AbstractWe 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. (JEL D11, D12, M31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Revealed Preference with Limited Consideration†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7685
D.O.I.
10.1257/mic.20150343
Publisher site
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Abstract

AbstractWe 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. (JEL D11, D12, M31)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Feb 1, 2018

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