Discussion Paper Details

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Title: Mutually Consistent Revealed Preference Demand Predictions

Author(s): Abigail Adams-Prassl

Publication Date: March 2019

Keyword(s): Demand estimation, mixed integer programming and Revealed Preference

Programme Area(s): Industrial Organization

Abstract: Revealed preference restrictions are increasingly used to predict demand behaviour at new budgets of interest and as shape restrictions in nonparametric estimation exercises. However, the restrictions imposed are not sufficient for rationality when predictions are made at multiple budgets. I highlight the nonconvexities in the set of predictions that arise when making multiple predictions. I develop a mixed integer programming characterisation of the problem that can be used to impose rationality on multiple predictions. The approach is applied to the UK Family Expenditure Survey to recover rational demand predictions with substantially reduced computational resources compared to known alternatives.

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Bibliographic Reference

Adams-Prassl, A. 2019. 'Mutually Consistent Revealed Preference Demand Predictions'. London, Centre for Economic Policy Research.