Work

On the meaning of the Critical Cost Efficiency Index

Year: 2021

Type: article

Abstract: This note provides a critical discussion of the \textit{Critical Cost-Efficiency Index} (CCEI) as used to assess deviations from utility-maximizing behavior. I argue that the CCEI is hard to interpret, and that it can disagree with other plausible measures of "irrational" behavior. The common interpretation of CCEI as wasted income is questionable. Moreover, I show that one agent may have more unstable preferences than another, but seem more rational according to the CCEI. This calls into question the (now common) use of CCEI as an ordinal and cardinal measure of degrees of rationality.

Source: CaltechAUTHORS (California Institute of Technology)

DOI: 10.48550/arxiv.2109.06354

Author: Echenique, Federico

Institution: California Institute of Technology

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: green

Funder: National Science Foundation

Award: Choices under Uncertainty