Revealed Preference with Limited Consideration

29 Pages Posted: 14 Oct 2014 Last revised: 18 Dec 2014

See all articles by Thomas Demuynck

Thomas Demuynck

Maastricht University

Christian Seel

Maastricht University

Date Written: December 18, 2014

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, unconstrained beliefs about the prices. By imposing restrictions on these subjective beliefs, 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.

Keywords: Revealed preference, bounded rationality, consideration set

JEL Classification: D11, D12, D81

Suggested Citation

Demuynck, Thomas and Seel, Christian, Revealed Preference with Limited Consideration (December 18, 2014). Available at SSRN: https://ssrn.com/abstract=2509353 or http://dx.doi.org/10.2139/ssrn.2509353

Thomas Demuynck

Maastricht University ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

Christian Seel (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands
0031 433883651 (Phone)

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