The fundamental problem facing the revealed preference
approach in practice is the type of bias we discussed in
Chapter 3. When doing revealed preference analysis, the
treatment is a good with a certain attribute (such as being
only 10 minutes from the city), while the control is another
good without that attribute (such as being 5 minutes far-
ther from the city). The problem is that the treatments and
controls may differ in ways that lead to bias. Suppose that
homes built closer to the city are smaller, or that they have
smaller yards. This would lead their value to be lower, so
that when one compared the prices of houses farther away
and closer to the city, one might not find the expected
decline in prices for farther -away homes. In the Boston met-
ropolitan area, for example, the town of Everett is on aver-
age only 4 miles from downtown Boston, while the suburban
town of Lexington is 11 miles away. Yet the average home
price in Everett is $322,923, while the average home price
in Lexington is about 2.3 times higher at $746,804.9 This is
because the houses in Lexington are typically much larger
and have nicer attributes than those in Everett.