Date: 12:30 on Tue, 21 Feb 2017

Venue:
Butler Room, Nuffield College

21 Feb @12:30

Eliciting the just-noticeable difference

Speaker(s): Pawel Dziewulski

 

Abstract

Representing consumer preference with a utility function, or a weak order in general, requires for indifferences to be transitive. However, this cannot be reconciled with the evidence from psychophysics which suggest that people are unable to discriminate between alternatives, unless the options are noticeably different. In this paper we provide the testable restrictions for a model of consumer choice that addresses the issue of noticeable differences by characterising consumer preference with a semiorder. We introduce a necessary and sufficient condition under which a finite dataset of consumption bundles and corresponding budget sets can be rationalised with such a relation. In particular, our restriction weakens the well-known generalised axiom of revealed preference. Furthermore, the method allows to elicit the just-noticeable difference required for the agent to discern between bundles. In fact, we argue that this value constitutes an informative measure of how well the preference revealed in the data could be approximated by a weak order. We conclude by applying our test to a panel dataset of food expenditures.

 

Sandwiches, fruit, and drinks will be provided from about 12.30 p.m. The speaker begins at 12.45 p.m., aiming to finish by 1.45 p.m., but the room is booked until 2.15 p.m. to allow those who wish to stay a little longer to do so.