arXiv subjects

Joshua Lanier

Publications and source records attributed to Joshua Lanier.

3 recordsLinked to original sources

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↗

arXiv2024

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

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↗