Homothetic Preferences Revealed

IFN Working Paper No. 1187

Tinbergen Institute Discussion Paper 2017-103/I

15 Pages Posted: 6 Nov 2017 Last revised: 25 Aug 2020

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: October 1, 2017

Abstract

We propose a method to recover homothetic preferences from choice data with minor optimization or measurement errors. Our method allows for a more detailed graphical analysis to reveal subjects' preferences and to choose appropriate functional forms for parametric analysis. It can also be used to extend applications of the money metric function, such as parametric recoverability as introduced by Halevy et al. (2017). It can also improve nonparametric comparison of preferences as suggested by Heufer (2014).

Keywords: Graphical Analysis, Homotheticity, Money Metric Utility, Recoverability, Revealed Preference

JEL Classification: C14, C91, D11, D12

Suggested Citation

Heufer, Jan and Hjertstrand, Per, Homothetic Preferences Revealed (October 1, 2017). IFN Working Paper No. 1187, Tinbergen Institute Discussion Paper 2017-103/I, Available at SSRN: https://ssrn.com/abstract=3064710 or http://dx.doi.org/10.2139/ssrn.3064710

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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