Abstract
Provided that one knows the preferences of people participating in a market and the model of economic behaviour is approximately true, then it is possible to forecast their behaviour, at least, if disturbing errors can be excluded. The following examination is directed towards the construction of quadratic objective functions by means of a linear programming technique, called LINMAP. Starting from the hypothesis that stated preferences are representative of the wants and needs of the respondents, parameter estimates are obtained which violate the given relations as little as possible. To see if the technique enables the forecast of behaviour, the problem of pure exchange between people will be modeled. This serves as a demonstration for a possible application. If the measured preferences are exact, the participants will trade at prices which are close to those forecasted by the model. The results refuted the hypothesis, however, this may have been due to the time constraints placed on the experiment and to previously unexpected errors in the experimental setup.
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Schwärm, C. (2002). Constructing Quadratic Objective Functions by Linear Programming with an Application to Pure Exchange. In: Tangian, A.S., Gruber, J. (eds) Constructing and Applying Objective Functions. Lecture Notes in Economics and Mathematical Systems, vol 510. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-56038-5_16
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DOI: https://doi.org/10.1007/978-3-642-56038-5_16
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