Stochastic Revealed Preferences with Measurement Error: Testing for Exponential Discounting in Survey Data

Posted: 16 May 2017

See all articles by Victor Aguiar

Victor Aguiar

Western University (University of Western Ontario)

Nail Kashaev

University of Western Ontario

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2017

Abstract

Measurement error causes a loss of distributional information, preventing the researcher from applying the deterministic revealed-preference tools at the individual level. This paper proposes a new statistical revealed-preference framework that is applicable to such cases. We use our framework to establish a nonparametric test of the standard exponential-discounting, time-separable consumer model in environments with measurement error in consumption. The proposed testing procedure is asymptotically consistent, though it may be conservative. We provide Monte Carlo evidence showing that measurement error in the standard deterministic revealed-preference tests may lead to mistakenly judging an otherwise time-consistent consumer to be time-inconsistent. In contrast, our methodology does not reject the exponential-discounting model in such cases. We find support for exponential-discounting behavior in a consumption panel survey for single-individual households, while rejecting the model for the case of couples’ households.

Keywords: exponential discounting, time consistency, time discount factor, revealed preferences, latent variable integration via simulation, measurement error

JEL Classification: D10, C60, C12

Suggested Citation

Aguiar, Victor and Kashaev, Nail, Stochastic Revealed Preferences with Measurement Error: Testing for Exponential Discounting in Survey Data (May 15, 2017). Available at SSRN: https://ssrn.com/abstract=2968909 or http://dx.doi.org/10.2139/ssrn.2968909

Victor Aguiar

Western University (University of Western Ontario) ( email )

1151 Richmond
London, Ontario N6A5C2
Canada

Nail Kashaev (Contact Author)

University of Western Ontario ( email )

Social Science Centre, Room 4071
London, Ontario N6A 5C2
Canada

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