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Abstract
Evidence showing that individual behavior often deviates from the classical principle of preference maximization has raised at least two important questions: (i) How serious are the deviations? and (ii) What is the best method for extracting relevant information from choice behavior for the purposes of welfare analysis? This paper addresses these questions by proposing an instrument to identify the preference relation closest to the revealed choices and evaluate the inconsistencies in terms of the associated welfare loss. We call this instrument the swaps index
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