arXiv subjects

John K. -H. Quah

Publications and source records attributed to John K. -H. Quah.

8 recordsLinked to original sources

arXiv2026

Revealed preference with optimal transport: money pumps, bounded rationality, and preference recovery

This paper explores the connection between two distinct notions of irrationality: the extent to which the consumer fails to maximize his utility function and the extent to which the consumer can be turned into a money pump. We show that the amount of money which can be pumped by an arbitrageur is equal to both (i) the minimum amount of money which the consumer overpays to attain his utility targets (minimum over all utility functions) and (ii) the minimum amount of wasted quasilinear utility (minimum again over all utility functions). Under the assumption that the consumer's true utility function belongs to the aforementioned argmins, we present a method for recovering this true utility function even when choices are non-optimal. Further, we show that this recovered utility function can be interpreted as belonging to a utility maximizing consumer who systematically mis-perceives prices. These results and many more are proved by exploiting a novel connection between revealed preference analysis and optimal transport.

econ.TH↗

arXiv2026

Ever since Ellsberg

Ellsberg's famous paradox challenged Savage's subjective expected utility theory (EUT) -- which reduces uncertainty to risk -- by suggesting an aversion toward ambiguity. We provide a revealed preference test of the full set of axioms underpinning subjective EUT under uncertainty and compare it to an analogous test of objective EUT under risk. We find that individual choices are as consistent with utility maximization and expected utility maximization under uncertainty as they are under risk. Nevertheless, there is greater empirical scope for non-EUT models under uncertainty than under risk, and the absolute and relative consistency of EUT and non-EUT models vary considerably across subjects.

econ.GN↗

arXiv2026

Price Heterogeneity as a Source of Heterogeneous Demand

We explore heterogeneous prices as a source of heterogeneous or stochastic demand. Heterogeneous prices could arise either because there is actual price variation among consumers or because consumers (mis)perceive prices differently. Our main result says the following: if heterogeneous prices have a distribution among consumers that is (in a sense) stable across observations, then a model where consumers have a common utility function but face heterogeneous prices has precisely the same implications as a heterogeneous preference/random utility model (with no price heterogeneity).

econ.TH↗

arXiv2026

Goodness-of-fit and utility estimation: what's possible and what's not

A goodness-of-fit index measures the consistency of consumption data with a given model of utility-maximization. We show that for the class of well-behaved (i.e., continuous and increasing) utility functions there is no goodness-of-fit index that is continuous and accurate, where the latter means that a perfect score is obtained if and only if a dataset can be rationalized by a well-behaved utility function. While many standard goodness-of-fit indices are inaccurate we show that these indices are (in a sense we make precise) essentially accurate. Goodness-of-fit indices are typically generated by loss functions and we find that standard loss functions usually do not yield a best-fitting utility function when they are minimized. Nonetheless, welfare comparisons can be made by working out a robust preference relation from the data.

econ.TH↗

arXiv2024

Comparative statics with adjustment costs and the Le Chatelier principle

We develop a theory of monotone comparative statics for models with adjustment costs. We show that comparative-statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming very little about costs: only a mild monotonicity condition is required. We use this insight to prove a general Le Chatelier principle: under the ordinal complementarity assumptions, if short-run adjustment is subject to a monotone cost, then the long-run response to a shock is greater than the short-run response. We extend these results to a fully dynamic model of adjustment over time: the Le Chatelier principle remains valid, and under slightly stronger assumptions, optimal adjustment follows a monotone path. We apply our results to models of saving, production, pricing, labor supply and investment.

econ.TH↗

arXiv2024

Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index

This note explains the equivalence between approximate rationalizability and approximate cost-rationalizability within the context of consumer demand. In connection with these results, we interpret Afriat's (1973) critical cost efficiency index (CCEI) as a measure of approximate rationalizability through cost inefficiency, in the sense that an agent is spending more money than is required to achieve her utility targets.

econ.GN↗

arXiv2024

Revealed preference and revealed preference cycles: a survey

Afriat's Theorem (1967) states that a dataset can be thought of as being generated by a consumer maximizing a continuous and increasing utility function if and only if it is free of revealed preference cycles containing a strict relation. The latter property is often known by its acronym, GARP (for generalized axiom of revealed preference). This paper surveys extensions and applications of Afriat's seminal result. We focus on those results where the consistency of a dataset with the maximization of a utility function satisfying some property can be characterized by a suitably modified version of GARP.

econ.TH↗

arXiv2021

Revealed Price Preference: Theory and Empirical Analysis

To determine the welfare implications of price changes in demand data, we introduce a revealed preference relation over prices. We show that the absence of cycles in this relation characterizes a consumer who trades off the utility of consumption against the disutility of expenditure. Our model can be applied whenever a consumer's demand over a strict subset of all available goods is being analyzed; it can also be extended to settings with discrete goods and nonlinear prices. To illustrate its use, we apply our model to a single-agent data set and to a data set with repeated cross-sections. We develop a novel test of linear hypotheses on partially identified parameters to estimate the proportion of the population who are revealed better off due to a price change in the latter application. This new technique can be used for nonparametric counterfactual analysis more broadly.

econ.EM↗