Measuring Hidden Consumer Heterogeneity with Revealed Preferences (opens in new tab)

Consumer heterogeneity in revealed-preference data is larger than bilateral rationality tests can reveal. We construct a continuous nonparametric metric of this hidden heterogeneity by repeatedly subsampling choices, partitioning consumers into groups whose pooled choices are jointly rationalisable, and recording how often each pair is co-classified. The resulting co-classification matrix is a revealed-preference kernel: it is positive semi-...