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TESTING THE SIGNIFICANCE OF THE DEPARTURES FROM UTILITY MAXIMIZATION

Published online by Cambridge University Press:  14 July 2005

PHILIPPE de PERETTI
Affiliation:
Université Paris1 Panthéon-Sorbonne

Abstract

This paper introduces a general procedure that tests the significance of the departures from utility maximization, departures defined as violations of the general axiom of revealed preference (GARP). This general procedure is based on (i) an adjustment procedure that computes the minimal perturbation in order to satisfy GARP by using the information content in the transitive closure matrix and (ii) a test procedure that checks the significance of the necessary adjustment. This procedure can be easily implemented and programmed, and we run Monte Carlo simulations to show that it is quite powerful.

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ARTICLES
Copyright
© 2005 Cambridge University Press

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