Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1187: Homothetic Preferences Revealed

Jan Heufer () and Per Hjertstrand ()
Additional contact information
Jan Heufer: Erasmus School of Economics and Tinbergen Institute, Postal: Rotterdam
Per Hjertstrand: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We propose a method to recover homothetic preferences from choice data with minor optimization or measurement errors. Our method allows for a more detailed graphical analysis to reveal subjects' preferences and to choose appropriate functional forms for parametric analysis. It can also be used to extend applications of the money metric function, such as parametric recoverability as introduced by Halevy et al. (2017). It can also improve nonparametric comparison of preferences as suggested by Heufer (2014).

Keywords: Graphical Analysis; Homotheticity; Money Metric Utility; Recoverability; Revealed Preference

JEL-codes: C14; C91; D11; D12

13 pages, November 9, 2017

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