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A Revealed Preference Approach to Computational Complexity in Economics

By Federico Echenique, Daniel Golovin and Adam Wierman

Abstract

One of the main building blocks of economics is the theory of the consumer, which postulates that consumers are utility maximizing. However, from a computational perspective, this model is called into question because the task of utility maximization subject to a budget constraint is computationally hard in the worst-case under reasonable assumptions. In this paper, we study the empirical consequences of strengthening consumer choice theory to enforce that utilities are computationally easy to maximize. We prove the possibly surprising result that computational constraints have no empirical consequences whatsoever for consumer choice theory. That is, a data set is consistent with a utility maximizing consumer if and only if a data set is consistent with a utility maximizing consumer having a utility function that can be maximized in strongly polynomial time. Our result motivates a general approach for posing questions about the empirical content of computational constraints: the revealed preference approach to computational complexity. The approach complements the conventional worst-case view of computational complexity in important ways, and is methodologically close to mainstream economics

Topics: Rationalization, Revealed Preference, Theory of the Consumer
Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.185.4672
Provided by: CiteSeerX
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