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GME versus OLS - Which is the best to estimate utility functions?

Author

Listed:
  • Cesaltina Pires

    (Departamento de Gestão, Universidade de Evora and CEFAGE-UE)

  • Andreia Dionisio

    (Departamento de Gestão, Universidade de Evora and CEFAGE-UE)

  • Luís Coelho

    (Departamento de Gestão, Universidade de Evora and CEFAGE-UE)

Abstract

This paper estimates von Neumann andMorgenstern utility functions comparing the generalized maximum entropy (GME) with OLS, using data obtained by utility elicitation methods. Thus, it provides a comparison of the performance of the two estimators in a real data small sample setup. The results confirm the ones obtained for small samples through Monte Carlo simulations. The difference between the two estimators is small and it decreases as the width of the parameter support vector increases. Moreover the GME estimator is more precise than the OLS one. Overall the results suggest that GME is an interesting alternative to OLS in the estimation of utility functions when data is generated by utility elicitation methods.

Suggested Citation

  • Cesaltina Pires & Andreia Dionisio & Luís Coelho, 2010. "GME versus OLS - Which is the best to estimate utility functions?," CEFAGE-UE Working Papers 2010_02, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2010_02
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    File URL: http://www.cefage.uevora.pt/en/content/download/2040/27998/version/1/file/2010_02.pdf
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    Citations

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    Cited by:

    1. Rui Fragoso & Maria Leonor da Silva Carvalho, 2013. "Estimation of cost allocation coefficients at the farm level using an entropy approach," Journal of Applied Statistics, Taylor & Francis Journals, vol. 40(9), pages 1893-1906, September.

    More about this item

    Keywords

    Generalized maximum entropy; Maximum entropy principle; von Neumann and Morgenstern utility; Utility elicitation.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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