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Mixture models of choice under risk

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  • Conte, Anna
  • Hey, John D.
  • Moffatt, Peter G.

Abstract

This paper is concerned with estimating preference functionals for choice under risk from the choice behaviour of individuals. We note that there is heterogeneity in behaviour between individuals and within individuals. By 'heterogeneity between individuals' we mean that people are different, in terms of both their preference functionals and their parameters for these functionals. By 'heterogeneity within individuals' we mean that the behaviour may be different even by the same individual for the same choice problem. We propose methods of taking into account all forms of heterogeneity, concentrating particularly on using a Mixture Model to capture the heterogeneity of preference functionals.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 162 (2011)
Issue (Month): 1 (May)
Pages: 79-88

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Handle: RePEc:eee:econom:v:162:y:2011:i:1:p:79-88

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Web page: http://www.elsevier.com/locate/jeconom

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Keywords: Expected utility theory Maximum simulated likelihood Mixture models Rank dependent expected utility theory Heterogeneity;

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References

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  2. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
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  16. Peter Moffatt, 2005. "Stochastic Choice and the Allocation of Cognitive Effort," Experimental Economics, Springer, vol. 8(4), pages 369-388, December.
  17. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
  18. Hey, John D., 1995. "Experimental investigations of errors in decision making under risk," European Economic Review, Elsevier, vol. 39(3-4), pages 633-640, April.
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