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Models of stochastic choice and decision theories: why both are important for analyzing decisions

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  • Pavlo R. Blavatskyy

    (Institute of Public Finance, University of Innsbruck, Innsbruck, Austria)

  • Ganna Pogrebna

    (Columbia University, Institute for Social and Economic Research and Policy, New York, USA)

Abstract

We select a menu of seven popular decision theories and embed each theory in five models of stochastic choice, including tremble, Fechner and random utility model. We find that the estimated parameters of decision theories differ significantly when theories are combined with different models. Depending on the selected model of stochastic choice we obtain different rankings of decision theories with regard to their goodness of fit to the data. The fit of all analyzed decision theories improves significantly when they are embedded in a Fechner model of heteroscedastic truncated errors or a random utility model. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Pavlo R. Blavatskyy & Ganna Pogrebna, 2010. "Models of stochastic choice and decision theories: why both are important for analyzing decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 963-986.
    • Handle: RePEc:jae:japmet:v:25:y:2010:i:6:p:963-986
    DOI: 10.1002/jae.1116
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