The Money Pump as a Measure of Revealed Preference Violations
Abstract
We introduce a measure of the severity of violations of the revealed preference axioms, the money pump index (MPI). The MPI is the amount of money one can extract from a consumer who violates the axioms. It is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error. We present an application using a panel data set of food expenditures. The data exhibit many violations of the axioms. Mostly, the MPI for these violations is small. The MPI indicates that the hypothesis of consumer rationality cannot be rejected.
Integrity signals
Registry
Cites
Statistics
Claims the paper makes
Claims other papers make about this one
Each is checked against this paper’s own text: does it say what the citing paper says it does?
In human subjects (our experiment) and prior studies, rationality score and preference differ across demographic groups.
“These are in contrast to results of our human experiment (SI Appendix, Tables S5 and S6) and prior studies where rationality score and preference have been shown to differ across demographic groups (22, 28, 61).”
From The emergence of economic rationality of GPT (2023) · cites this paper as [28]
Cites
Economics and Consumer Behavior
Deaton, A., & Muellbauer, J. N. J. (1980) · Cambridge University Press eBooks · doi:10.1017/cbo9780511805653 · Cited by 4,306 · see citing works
A Note on the Pure Theory of Consumer's Behaviour
Samuelson, P. A. (1938) · Economica · doi:10.2307/2548836 · Cited by 2,342 · see citing works
Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism
Andreoni, J., & Miller, J. H. (2002) · Econometrica · doi:10.1111/1468-0262.00302 · Cited by 2,012 · see citing works
Funnekotter, B. (2005) · Amsterdam University Press eBooks · doi:10.1017/9789048505418.012 · Cited by 1,672 · see citing works
Finzi, R. (2006) · Cited by 1,436 · see citing works
The Construction of Utility Functions from Expenditure Data
Afriat, S. N. (1967) · International Economic Review · doi:10.2307/2525382 · Cited by 1,183 · see citing works
The Nonparametric Approach to Demand Analysis
Varian, H. R. (1982) · Econometrica · doi:10.2307/1912771 · Cited by 1,173 · see citing works
Irrational Behavior and Economic Theory
Becker, G. S. (1962) · Journal of Political Economy · doi:10.1086/258584 · Cited by 1,156 · see citing works
Measuring the Implications of Sales and Consumer Inventory Behavior
Hendel, I. E., & Nevo, A. (2005) · Econometrica · doi:10.1111/j.1468-0262.2006.00721.x · Cited by 665 · see citing works
Richter, M. K. (1966) · Econometrica · doi:10.2307/1909773 · Cited by 651 · see citing works
Bell, D., & Lattin, J. M. (1998) · Marketing Science · doi:10.1287/mksc.17.1.66 · Cited by 581 · see citing works
A perspective on psychology and economics
Rabin, M. (2002) · European Economic Review · doi:10.1016/s0014-2921(01)00207-0 · Cited by 581 · see citing works
Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data
Chevalier, J. A., Kashyap, A., & Rossi, P. E. (2003) · American Economic Review · doi:10.1257/000282803321455142 · Cited by 492 · see citing works
How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior
Chen, M. K., Lakshminarayanan, V., & Santos, L. R. (2006) · Journal of Political Economy · doi:10.1086/503550 · Cited by 472 · see citing works
Semi-Nonparametric IV Estimation of Shape-Invariant Engel Curves
Blundell, R. W., Chen, X., & Kristensen, D. (2007) · Econometrica · doi:10.1111/j.1468-0262.2007.00808.x · Cited by 468 · see citing works
Consumer Behaviour: Theory and Empirical Evidence--A Survey
Blundell, R. W. (1988) · The Economic Journal · doi:10.2307/2233510 · Cited by 340 · see citing works
Goodness-of-Fit in Optimizing Models
Varian, H. R. (1990) · Journal of Econometrics · doi:10.1016/0304-4076(90)90051-t · Cited by 322 · see citing works
Non-parametric analysis of optimizing behavior with measurement error
Varian, H. R. (1985) · Journal of Econometrics · doi:10.1016/0304-4076(85)90150-2 · Cited by 301 · see citing works
The Power of Nonparametric Tests of Preference Maximization
Bronars, S. G. (1987) · Econometrica · doi:10.2307/1913608 · Cited by 285 · see citing works
GARP for Kids: On the Development of Rational Choice Behavior
Harbaugh, W. T., Krause, K., & Berry, T. R. (2001) · American Economic Review · doi:10.1257/aer.91.5.1539 · Cited by 279 · see citing works
Choi, S., Kariv, S., Müller, W., & Silverman, D. (2014) · American Economic Review · doi:10.1257/aer.104.6.1518 · Cited by 277 · see citing works
Nonparametric Engel Curves and Revealed Preference
Blundell, R. W., Browning, M., & Crawford, I. A. (2003) · Econometrica · doi:10.1111/1468-0262.00394 · Cited by 264 · see citing works
Hendel, I. E., & Nevo, A. (2006) · The RAND Journal of Economics · doi:10.1111/j.1756-2171.2006.tb00030.x · Cited by 213 · see citing works
Accounting for Changes in Tastes
Chalfant, J. A., & Alston, J. M. (1988) · Journal of Political Economy · doi:10.1086/261543 · Cited by 183 · see citing works
Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast‐Cereals Market
Shum, M. (2004) · Journal of Economics & Management Strategy · doi:10.1111/j.1530-9134.2004.00010.x · Cited by 158 · see citing works
Self-citationA Measure of Rationality and Welfare
Apesteguía, J., & Ballester, M. A. (2015) · Journal of Political Economy · doi:10.1086/683838 · Cited by 121 · see citing works
A TEST OF CONSUMER DEMAND THEORY USING OBSERVATIONS OF INDIVIDUAL CONSUMER PURCHASES
Battalio, R. C., Kagel, J. H., Winkler, R. C., et al. (1973) · Economic Inquiry · doi:10.1111/j.1465-7295.1973.tb00972.x · Cited by 110 · see citing works
How demanding is the revealed preference approach to demand
Beatty, T., & Crawford, I. (2017) · doi:10.1920/wp.cem.2010.1710 · Cited by 95 · see citing works
Revealed Preferences in a Heterogeneous Population
Hoderlein, S., & Stoye, J. (2013) · The Review of Economics and Statistics · doi:10.1162/rest_a_00397 · Cited by 79 · see citing works
A Household-Based, Nonparametric Test of Demand Theory
Famulari, M. (1995) · The Review of Economics and Statistics · doi:10.2307/2109872 · Cited by 72 · see citing works
The effect of the BSE outbreak in Japan on consumers' preferences
Jin, H. J. (2003) · European Review of Agricultural Economics · doi:10.1093/erae/30.2.173 · Cited by 64 · see citing works
Testing Data for Consistency with Revealed Preference
Gross, J. (1995) · The Review of Economics and Statistics · doi:10.2307/2109817 · Cited by 64 · see citing works
A Study of Consumer Behavior Using Laboratory Data
Février, P., & Visser, M. S. (2003) · Experimental Economics · doi:10.1023/a:1026266122863 · Cited by 52 · see citing works
Why Does the Average Price of Tuna Fall During Lent?
Nevo, A., & Hatzitaskos, K. (2005) · National Bureau of Economic Research · doi:10.3386/w11572 · Cited by 41 · see citing works
A Logical Economist's Argument Against Hyperbolic Discounting
Mulligan, C. B. (1998) · Cited by 38 · see citing works
Safety in Markets: An Impossibility Theorem for Dutch BooksPreprint
Laibson, D., & Yariv, Y. (2004) · RePEc: Research Papers in Economics · Cited by 34 · see citing works
Samuelsonian economics and the twenty-first century
(2007) · Choice Reviews Online · doi:10.5860/choice.44-6349 · Cited by 27 · see citing works
Real income growth and revealed preference inconsistencyPreprint
Jerison, M., & Jerison, D. (2001) · RePEc: Research Papers in Economics · Cited by 5 · see citing works
Real income growth and revealed preference inconsistency
Jerison, D., & Jerison, M. (2001) · e-Archivo (Carlos III University of Madrid) · Cited by 2 · see citing works
Flagged first, then by citations
Cited by
Sorted by citations
Choi, S., Kariv, S., Müller, W., & Silverman, D. (2014) · American Economic Review · doi:10.1257/aer.104.6.1518 · Cited by 277 · see citing works
The emergence of economic rationality of GPT
Chen, Y., Liu, T. X., Shan, Y., & Zhong, S. (2023) · Proceedings of the National Academy of Sciences · doi:10.1073/pnas.2316205120 · Cited by 164 · see citing works
“…measure rationality in the revealed preference literature, including the Houtman-Maks Index (HMI) (Houtman and Maks, 1985), Money Pump Index (MPI) (Echenique et al., 2011), and Minimum Cost Index (MCI) (Dean and Martin, 2016), and construct cumulative distribution plots for each index and its…”
BackgroundMethodResultInfluential
- Authors
- Echenique, F., Lee, S., & Shum, M.
- Affiliations
- California Institute of Technology (US)
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2011-12
- Volume
- 119
- Issue
- 6
- Pages
- 1201-1223
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2172579696
- Cited by
- 160
- References
- 40
- Citations by year
- 2026: 5 · 2025: 6 · 2024: 11 · 2023: 12 · 2022: 14 · 2021: 20 · 2020: 13 · 2019: 9 · 2018: 16 · 2017: 7 · 2016: 7 · 2015: 19 · 2014: 11 · 2013: 5 · 2012: 3
- FWCI
- 3.52
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Political Economy (publishedVersion)
- CaltechAUTHORS (California Institute of Technology) (submittedVersion)
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic and Environmental Valuation
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economics of Agriculture and Food Markets
- Keywords
- money pump, consumer rationality, food expenditure, consumer choice
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
Are you an author, or do you see a problem with this page? Request a review
