Publication detail

Extent of Irrationality of the Consumer: Combining the Critical Cost Efficiency and Houtman Maks Indices

Author(s): Matěj Opatrný MSc.,
Type: IES Working Papers
Year: 2018
Number: 11
ISSN / ISBN:
Published in: IES Working Papers 11/2018
Publishing place: Prague
Keywords: Critical Cost Efficiency Index, Houtman Maks Index, Socio-economic groups, observation
JEL codes: D12, D14, D81, D83, D91, G11
Suggested Citation: Opatrny, M. (2018): "Extent of Irrationality of the Consumer: Combining the Critical Cost Efficiency and Houtman Maks Indices " IES Working Papers 11/2018. IES FSV. Charles University.
Abstract: We combine the Critical Cost Efficiency Index and the Houtman Maks Index to evaluate the consistency of subjects in a set of choice data from budgets. We show that by simply allowing subjects for one significant mistake (by removing the worst observation), the mean Critical Cost Efficiency Index in a set of choices from an online experiment with the general population increases by 6 percentage points. Furthermore, we find that by excluding the worst observation per subject, the fraction of subjects wasting 5% or less of their budget increases from 45% to 64%. The highest improvement in terms of efficiency can be seen among retired and 65+ aged subjects which indicates that their low level of effciency is largely due to a single mistake.
Downloadable: wp_2018_11_opatrny

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