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Most models of ambiguity aversion satisfy the Anscombe–Aumann monotonicity axiom. Monotonicity implies a weak form of separability of preferences across events that occur with unknown probability. We construct a test of weak separability by modifying the Allais paradox, adapting it to the Anscombe–Aumann framework. Three experimental studies are conducted. Study 1 finds frequent, systematic violations of weak separability in the lab. These findings replicate in study 2, where we employ a subject pool of online workers and use a natural rather than an artificial source of uncertainty. Investigating a potential explanation of the violations, study 3 suggests that the certainty effect plays a major role. Data and the web appendix are available at https://doi.org/10.1287/mnsc.2017.3010 . This paper was accepted by Han Bleichrodt, decision analysis.

AbstractAn operation generalizing convolution is introduced using the Young transform and Fenchel’s duality theorem. Based on this operation, an aggregation procedure for a nonlinear input–output model with concave positively homogeneous production functions is proposed.

After Japan’s bubble economy collapsed in 1991, household values diversified, and, gradually, the budget shares on intangible services exceeded that on tangible goods, leading to a shift from demand for goods to services. In this study, we focus on the increased budget allocation to services in Japanese household expenditure and verify whether service-related items can be aggregated into a service group using Lewbel’s (Am Econ Rev 86(3):524–543, 1996) generalized composite commodity theorem (GCCT). We first accurately reclassify into all 51 items consisting of goods and services and verify whether these aggregations are justified. Next, we verify whether these 51 items can be sub-aggregated into goods or service groups. In testing the GCCT, we incorporate panel time-series analysis with cross-sectional dependence, unlike traditional GCCT tests with time-series data. We also conduct a nonparametric revealed preference test for weak separability as a benchmark against the GCCT test results. Our findings demonstrate that the utility function can be rationalized even when the data set is reclassified into 51 items, justifying the aggregation into service groups. This suggests that in the future, specifying the functional form of a service group can be developed into a traditional demand analysis, such as calculating estimates and elasticities.

For previously identified weakly separable blockings of goods and assets, we construct aggregates using four superlative index numbers, the Fisher, Sato-Vartia, Törnqvist, and Walsh, two non-superlative indexes, the Laspeyres and Paasche, and the atheoretical simple summation. We conduct several tests to examine how well each of these aggregates “fit” the data. These tests are how close the aggregates come to solving the revealed preference conditions for weak separability, how often each aggregate gets the direction of change correct, and how well the aggregates mimic the preference ranking from revealed preference tests. We find that, as the number of goods and assets being aggregated increases, the problems with simple summation manifest.

This paper takes a parametric approach to demand analysis and tests the weak separability assumptions that are often implicitly made in representative agent models of modern macroeconomics. The approach allows estimation and testing in a systems-of-equations context, using the minflex Laurent flexible functional form for the underlying utility function and relaxing the assumption of fixed consumer preferences by assuming Markov regime switching. We generate inference consistent with both theoretical and econometric regularity. We strongly reject weak separability of consumption and leisure from real money balances as well as weak separability of consumption from leisure and real money balances, meaning that the inclusion of a money in economic models would be of quantitative importance. We also investigate the substitutability/complementarity relationship among different categories of personal consumption expenditure (nondurables, durables, and services), leisure, and money. We find that the goods are net Morishima substitutes, but because of positive income effects they are gross complements. The implications for monetary policy are also briefly discussed.

Swofford and Whitney (1987, 1988, 1994) investigated the validity of two key assumptions underlying representative agent models of macroeconomics. These assumptions are utility maximization and weak separability. Using mixed integer programming, we check revealed preference conditions for these assumptions. We find that M1, money defined by Friedman and Schwartz (1963), and a broad aggregate are weakly separable. We find that consumption goods and leisure and nondurables and services are weakly separable. We find that M2, M3, and MZM are not weakly separable. Finally, we find three categories of consumption, durables, nondurables and services, do not form an aggregate.

We document a nonparametric test for weak separability between time use and consumption goods applied to unique time-use data on Belgian singles and households. The test outcomes reject the hypothesis of weak separability, indicating that household consumption decisions are not made independent from time-use allocations. Second, we conduct a nonparametric evaluation of unitary and collective rationality tests under a comprehensive setting studying choices on both private and public consumption in combination with time spent on labour supply and domestic work. This makes the analysis less vulnerable to separability issues and obtains a more realistic description of household trade-offs between consumption and time use (i.e. leisure and domestic work) than does the existing work. Moreover, our analysis uses nonparametric revealed preference tools and abstains from imposing functional form assumptions on the individual utilities and the household decision process. The outcomes confirm previous findings validating the use of collective models to analyse multi-member decision making. Lastly, we show the robustness of our outcomes to settings typically considered in existing work (missing detailed time-use information).

Weak separability is a frequently maintained hypothesis in demand analysis and it’s rarely tested. This paper tested the restrictions of weak separability in a meat demand system in Brazil, using microdata from POF 2008-09. Results showed that consumers do not distinguishmeats by animal type or quality and that an estimate of demand for meats without using price and expenditure of other foods incurs in omission of relevant variables, impacting cross price elasticities.

This paper studies the special case of the triangular system of equations in Vytlacil and Yildiz (2007), where both dependent variables are binary but without imposing the restrictive support condition required by Vytlacil and Yildiz (2007) for identification of the average structural function (ASF) and the average treatment effect (ATE). Under weak regularity conditions, we derive upper and lower bounds on the ASF and the ATE. We show further that the bounds on the ASF and ATE are sharp under some further regularity conditions and an additional restriction on the support of the covariates and the instrument.

This paper develops nonparametric methods for welfare-analysis of economic changes in the common setting of multinomial choice. The results cover (a) simultaneous price-change of multiple alternatives, (b) introduction/elimination of an option, (c) changes in choice-characteristics, and (d) choice among nonexclusive alternatives. In these cases, Marshallian consumer surplus becomes path-dependent, but Hicksian welfare remains well-defined. We demonstrate that under completely unrestricted preference-heterogeneity and income-effects, the distributions of Hicksian welfare are point-identified from structural choice-probabilities in scenarios (a), (b), and only set-identified in (c), (d). In program-evaluation contexts, our results enable the calculation of compensated-effects, that is, the program's cash-equivalent and resulting deadweight-loss. They also facilitate a theoretically justified cost-benefit comparison of interventions targeting different outcomes, for example, a tuition-subsidy and a health-product subsidy. Welfare analyses under endogeneity is briefly discussed. An application to data on choice of fishing-mode illustrates the methods.