Revealed Preference Tests of Collectively Rational Consumption Behavior: Formulations and Algorithms
Fabrice Talla Nobibon, Laurens Cherchye, Yves Crama, Thomas Demuynck, Bram De Rock, Frits C. R. Spieksma
Operations Research · 2016 · Volume 64 · Issue 6
Abstract
This paper focuses on revealed preference tests of the collective model of household consumption. We start by showing that the decision problems corresponding to testing collective rationality are NP-complete. This makes the application of these tests problematic for (increasingly available) large(r)-scale data sets. We then present two approaches to overcome this negative result. First, we introduce exact algorithms based on mixed-integer programming (MIP) formulations of the collective rationality tests, which can be usefully applied to medium-sized data sets. Next, we propose simulated annealing heuristics, which allow for efficient testing of the collective model in the case of large data sets. We illustrate our methods by a number of computational experiments based on Dutch labor supply data.
Keywords
revealed preference axioms, rationality, mixed-integer programming, global optimization, simulated annealing
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