Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index
General Economics
2024-07-23 v2 Economics
Abstract
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.
Keywords
Cite
@article{arxiv.2406.10136,
title = {Rationalizability, Cost-Rationalizability, and Afriat's Efficiency Index},
author = {Matthew Polisson and John K. -H. Quah},
journal= {arXiv preprint arXiv:2406.10136},
year = {2024}
}