| Roberto Serrano (Brown University). |
| Slutsky matrix norms and the size of bounded rationality |
| (with Victor H. Aguiar) |
| Abstract Given any observed demand behavior by means of a demand function, we quantify by how much it departs from rationality. Using a recent elaboration of the "almost implies near" principle, the measure of the gap is the smallest norm of the correcting matrix function that would yield a Slutsky matrix with its standard rationality properties (symmetry, singularity,and negative semide niteness). A useful classi cation of departures from rationality is suggested as a result. Variants, examples, and applications are discussed, and illustrations are provided using several bounded rationality models. |