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How many types are there?

Authors: Ian Crawford and Krishna Pendakur
Date: 11 March 2013
Type: Journal article, Economic Journal, Vol. 123, No. 567, pp. 77-95
DOI: 10.1111/j.1468-0297.2012.02545.x

Abstract

We consider a revealed preference-based method that will bound the minimal partition of consumer microdata into a set of preference types such that the data are perfectly rationalisable by standard utility theory. This provides a simple, non-parametric and theory-driven way of investigating unobserved preference heterogeneity in empirical data, and easily extends to any choice model which has a revealed preference characterisation. We illustrate the approach using survey data and find that the number of types is remarkably few relative to the sample size – only four or five types are necessary to fully rationalise all observed choices in a data set with 500 observations of choice vectors.

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