Consistent Subsets – Computationally Feasible Methods to Compute the Houtman-Maks-Index

9 Pages Posted: 18 Feb 2015

See all articles by Jan Heufer

Jan Heufer

Erasmus University Rotterdam (EUR) - Department of Applied Economics; Tinbergen Institute

Per Hjertstrand

Research Institute of Industrial Economics (IFN)

Date Written: December 17, 2014

Abstract

We provide two methods to compute the largest subset of a set of observations that is consistent with the Generalised Axiom of Revealed Preference. The algorithm provided by Houtman and Maks (1985) is not computationally feasible for larger data sets, while our methods are not limited in that respect. The first method is a variation of Gross and Kaiser’s (1996) approximate algorithm and is only applicable for two-dimensional data sets, but it is very fast and easy to implement. The second method is a mixed -integer linear programming approach that is slightly more involved but still fast and not limited by the dimension of the data set.

Keywords: Demand theory; efficiency; nonparametric analysis; revealed preference; utility maximisation

JEL Classification: C14, D11, D12

Suggested Citation

Heufer, Jan and Hjertstrand, Per, Consistent Subsets – Computationally Feasible Methods to Compute the Houtman-Maks-Index (December 17, 2014). Ruhr Economic Paper No. 523, Available at SSRN: https://ssrn.com/abstract=2566236 or http://dx.doi.org/10.2139/ssrn.2566236

Jan Heufer (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Applied Economics ( email )

Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Per Hjertstrand

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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