Testing Consumer Rationality Using Perfect Graphs and Oriented Discs

Given a consumer data-set, the axioms of revealed preference proffer a binary test for rational behaviour. A natural (non-binary) measure of the degree of rationality exhibited by the consumer is the minimum number of data points whose removal induces a rationalisable data-set. We study the computational complexity of the resultant consumer rationality problem in this paper. We explain how to formulate this problem in terms of a directed revealed preference graph and show, for markets with a large number of commodities, that it is equivalent (in terms of approximation) to the directed feedback vertex set problem. Our main result is to obtain an exact threshold on the number of commodities that separates easy cases and hard cases. Specifically, for two-commodity markets the consumer rationality problem is polynomial time solvable; we prove this via a reduction to the vertex cover problem on perfect graphs. For three-commodity markets, however, the problem is NP-complete; we prove this using a reduction from planar 3-sat that is based upon oriented-disc drawings.