|Date:||01 October 2011|
|Authors:||Tim Beatty and Ian Crawford|
|Publisher:||American Economic Association|
|Published in:||American Economic Review , Vol. 101, No. 6 pp. 2782-2795|
|JEL classification:||D11; D12|
A well-known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory, or a warning that these conditions are so undemanding that almost anything goes. This paper allows researchers to make this distinction. Our approach uses an axiomatic characterization of a measure of predictive success due to Selten (1991). We illustrate the idea using a panel dataset. The results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory.
Find the working paper here.