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Working Paper No. 1187

Homothetic Preferences Revealed

Working Paper
Heufer, Jan and Per Hjertstrand (2017). “Homothetic Preferences Revealed”. IFN Working Paper No. 1187. Stockholm: Research Institute of Industrial Economics (IFN).

Jan Heufer, Per Hjertstrand

We propose a method to recover homothetic preferences from choice data with minor optimization or measurement errors. Our method allows for a more detailed graphical analysis to reveal subjects' preferences and to choose appropriate functional forms for parametric analysis. It can also be used to
extend applications of the money metric function, such as parametric recoverability as introduced by Halevy et al. (2017). It can also improve nonparametric comparison of preferences as suggested by Heufer (2014).