Measuring Rationality: Percentages vs Expenditures

18 Pages Posted: 16 Jun 2019

See all articles by Roy Allen

Roy Allen

University of Western Ontario - Department of Economics

John Rehbeck

Ohio State University (OSU) - Economics

Date Written: June 4, 2019

Abstract

Individual choices are often inconsistent with economic theories, which has motivated a variety of ways to measure how far choices are from a given theory. Recent work has investigated the correlation between measures of rationality and observable information such as education or income. This paper investigates the sensitivity of this analysis to the units used to measure rationality -- percentage expenditure vs dollars expenditure. We find that correlations can change sign when we change the units, but this sensitivity is mitigated with experimental data.

Keywords: Revealed preference, rationality, Afriat efficiency

JEL Classification: A10, A12, B4, D01

Suggested Citation

Allen, Roy and Rehbeck, John, Measuring Rationality: Percentages vs Expenditures (June 4, 2019). Available at SSRN: https://ssrn.com/abstract=3399065 or http://dx.doi.org/10.2139/ssrn.3399065

Roy Allen

University of Western Ontario - Department of Economics ( email )

Social Science Centre, Room 4071
London, Ontario N6A 5C2
Canada

John Rehbeck (Contact Author)

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

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