Ruhr Economic Papers

Ruhr Economic Papers #523

Consistent Subsets – Computationally Feasible Methods to Compute the Houtman-Maks-Index

by Jan Heufer and Per Hjertstrand

TUD, 12/2014, 7 S./p., 6 Euro, ISBN 978-3-86788-598-0 DOI: 10.4419/86788598

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Abstract

We provide two methods to compute the largest subset of a set of observations that is consistent with the Generalised Axiom of Revealed Preference. The algorithm provided by Houtman and Maks (1985) is not comput ationally feasible for larger data sets, while our methods are not limited in that respect. The first method is a variation of Gross and Kaiser’s (1996) approximate algorithm and is only applicable for two-dimensional data sets, but it is very fast and easy to implement. The second method is a mixed-integer linear programming approach that is slightly more involved but still fast and not limited by the dimension of the data set.

JEL-Classification: C14, D11, D12

Keywords: Demand theory; efficiency; nonparametric analysis; revealed preference; utility maximisation

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