Revealed Preference and Econometrics

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This project explores whether or not we can empirically test the assumption that people make decisions in economically rational ways. The project combines the well-known microeconomic concept of revealed preference with recent results on nonparametric demand estimation. The research team combines new research in economic theory, the development of new computational tools, and new statistical testing methods that include new test statistics, ways to estimate the distribution of these statistics, and ways to construct confidence intervals. The methods are all intended for application to large data sets.The project breaks new ground by building ideas and methods that bring together two very different areas of economics. The results will allow for the empirical testing of key economic hypotheses using very large data sets in ways that are only now possible because of increased computing power. The methods developed in this project will be useful for many other purposes; for example, businesses and governments will be able to use these methods to infer demand for new products from observed purchase decisions about existing products.