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Barcelona GSE Working Paper No. 573

Title: A Measure of Rationality and Welfare
Authors: Jose Apesteguia, Miguel A. Ballester
Date: 15-09-2011
Keywords: Rationality; Individual Welfare; Revealed Preference
JEL Codes: D01; D60.
Abstract:
There is evidence showing that individual behavior often deviates from the classical principle of maximization. This evidence raises at least two important questions: (i) how severe the deviations are and (ii) which method is the best for extracting relevant information from choice behavior for the purposes of welfare analysis. In this paper we address these two questions by identifying from a foundational analysis a new measure of the rationality of individuals that enables the analysis of individual welfare in potentially inconsistent subjects, all based on standard revealed preference data. We call such measure minimal index.
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