What Types are There?

Luxembourg Institute of Socio-Economic Research (LISER) Working Paper Series 2017-01

32 Pages Posted: 31 Jan 2017

See all articles by Sam Cosaert

Sam Cosaert

Luxembourg Institute of Socio-Economic Research (LISER)

Date Written: January 31, 2017

Abstract

Preferences differ in the population, and this heterogeneity may not be adequately described by observed characteristics and additive error terms. As a first contribution, this study shows that preference heterogeneity can be represented graphically by means of violations of the Weak Axiom of Revealed Preference (WARP), and that computing the minimum number of partitions necessary to break all WARP violations in the sample is equivalent to computing the chromatic number of this graph. Second, the study builds the bridge between revealed preference theory and cluster analysis to assign individuals to these partitions (i.e. preference types). The practical methods are applied to Dutch labour supply data, to recover reservation wages of individuals who belong to particular preference types.

Keywords: preference heterogeneity, chromatic number, revealed preference, labour supply, constrained clustering

JEL Classification: C14, C38, C44, D12, D13

Suggested Citation

Cosaert, Sam, What Types are There? (January 31, 2017). Luxembourg Institute of Socio-Economic Research (LISER) Working Paper Series 2017-01, Available at SSRN: https://ssrn.com/abstract=2908879 or http://dx.doi.org/10.2139/ssrn.2908879

Sam Cosaert (Contact Author)

Luxembourg Institute of Socio-Economic Research (LISER) ( email )

11, Porte des Sciences
Campus Belval – Maison des Sciences Humaines
Esch-sur-Alzette, L-4366
Luxembourg

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
51
Abstract Views
448
Rank
693,387
PlumX Metrics