Chaos Theory and Microeconomics: An Application to Model Specification and Hedonic Estimation

This paper is the first to apply the theory of deterministic chaos to a microeconomic problem. Previous applications of chaos theory to time series data, while successful in uncovering nonlinearities, have not provided guidelines for resolving uncovered misspecification problems. In contrast, we sho...

Full description

Saved in:
Bibliographic Details
Published in:The review of economics and statistics 1991-05, Vol.73 (2), p.208-215
Main Authors: Craig, Steven G., Kohlhase, Janet E., Papell, David H.
Format: Article
Language:English
Subjects:
Applications
Bedrooms
Chaos theory
Economic models
Economic theory
Economics
Housing
Housing prices
Microeconomic modeling
Microeconomics
Nonlinearity
Parsimony
Regression analysis
Social research
Specifications
Standard error
Statistics
Studies
Tests
Time series
Uncertainty
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper is the first to apply the theory of deterministic chaos to a microeconomic problem. Previous applications of chaos theory to time series data, while successful in uncovering nonlinearities, have not provided guidelines for resolving uncovered misspecification problems. In contrast, we show that a modified test statistic from chaos theory is an extremely valuable tool in microeconomic model specification because it shows when excluded information is correlated with included information. This test, applied to hedonic estimation of marginal housing prices, is able to distinguish among alternative regression specifications and assists in discovering a parsimonious specification devoid of nonlinear effects.
ISSN:0034-6535
1530-9142
DOI:10.2307/2109510