Microeconomics Theory, Experimental Economics, and Econometrics
Set Estimation of an Unknown Error Rate using Random Revealed Preferences [draft available on request]
How can we identify mistakes from irrational behavior? Numerous studies in both the lab and eld have found evidence of behavior that is inconsistent with rational choice. In a departure from existing indices of goodness-of-fit, this paper develops an intuitive measure of rationality estimated on a revealed preference relation. The proposed metric is a set estimate of the error rate necessary to explain deviations from economic rationality. The error rate arises as a parameter in a contaminated choice model and appears again in the resultant revealed preference relation, which is also contaminated with error. This random revealed preference is a new type of random graph with a unique dependency structure. The random graph is distributed on a space of feasible revealed preference relations and the distribution is identified by the unknown error rate and some "true" deterministic relation. Applying weak assumptions on this random graph model equates acyclicity with the general axiom of revealed preferences. A proposed hypothesis test estimates the unknown error rate conditional on the true relation being acyclic using the expected number of cycles of length two. The result is a set estimate bounding the unknown error rate under the null. A proposed subsampling approach is shown through simulations to be computationally efficient.
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"External Validity of Lab Experiments: The Case of Economic Rationality" (in preparation) with Shachar Kariv, Raja Sangupta, Alex Mead, and Sid Feygin
"Emotions and Decision Making over Risk: A Smartphone Experiment" (data analysis stage) with Sid Feygin and Orianna DeMassi