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Consistency, Heterogeneity, and Granularity of Individual Behavior under Uncertainty

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  • Syngjoo Choi
  • Raymond Fisman
  • Douglas Gale
  • Shachar Kariv

Abstract

By using graphical representations of budget sets over bundles of state-contingent commodities, we generate a very rich data set well-suited to studying behavior under uncertainty at the level of the individual subject. We test the data for consistency with the maximization hypothesis, and we estimate preferences using a two-parameter utility function based on Faruk Gul (1991). This specification provides a good interpretation to the data at the level of the individual subject and can account for the highly heterogeneous behaviors observed in the laboratory. The parameter estimates jointly describe attitudes toward risk and allow us to characterize the distribution of risk preferences in the population.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000793.

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Date of creation: 26 Jan 2007
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Handle: RePEc:cla:levrem:321307000000000793

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  1. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
  2. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  3. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
  4. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-98, October.
  5. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  6. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  7. Jacob K. Goeree & Charles A. Holt, 2000. "A Model of Noisy Introspection," Virginia Economics Online Papers 343, University of Virginia, Department of Economics.
  8. Varian, H.R., 1991. "Goodness of Fit for Revealed Preference Tests," Papers 13, Michigan - Center for Research on Economic & Social Theory.
  9. Loomes, Graham, 1991. " Evidence of a New Violation of the Independence Axiom," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 91-108, January.
  10. Douglas M. Gale & Shachar Kariv & Syngjoo Choi & Raymond Fisman, 2007. "Revealing Preferences Graphically: An Old Method Gets a New Tool Kit," American Economic Review, American Economic Association, vol. 97(2), pages 153-158, May.
  11. Chew, Soo Hong, 1983. "A Generalization of the Quasilinear Mean with Applications to the Measurement of Income Inequality and Decision Theory Resolving the Allais Paradox," Econometrica, Econometric Society, vol. 51(4), pages 1065-92, July.
  12. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics.
  13. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2003. "Risk averse behavior in generalized matching pennies games," Games and Economic Behavior, Elsevier, vol. 45(1), pages 97-113, October.
  14. 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.
  15. Ray Fisman & Shachar Kariv & Daniel Markovits, 2006. "Individual Preferences for Giving," Levine's Bibliography 666156000000000468, UCLA Department of Economics.
  16. Dekel, Eddie, 1986. "An axiomatic characterization of preferences under uncertainty: Weakening the independence axiom," Journal of Economic Theory, Elsevier, vol. 40(2), pages 304-318, December.
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Cited by:
  1. Vieider, Ferdinand M. & Truong, Nghi & Martinsson, Peter & Pham Khanh Nam & Martinsson, Peter, 2013. "Risk preferences and development revisited: A field experiment in Vietnam," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-403, Social Science Research Center Berlin (WZB).
  2. Jan Heufer, 2013. "Testing revealed preferences for homotheticity with two-good experiments," Experimental Economics, Springer, vol. 16(1), pages 114-124, March.
  3. Hvide, Hans K. & Panos, Georgios A., 2014. "Risk tolerance and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 111(1), pages 200-223.
  4. Daniel Burghart & Paul Glimcher & Stephanie Lazzaro, 2013. "An expected utility maximizer walks into a bar..," Journal of Risk and Uncertainty, Springer, vol. 46(3), pages 215-246, June.
  5. Hans-Martin Gaudecker & Arthur Soest & Erik Wengström, 2012. "Experts in experiments," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 159-190, October.
  6. Heufer, Jan, 2013. "Quasiconcave preferences on the probability simplex: A nonparametric analysis," Mathematical Social Sciences, Elsevier, vol. 65(1), pages 21-30.
  7. Jan Heufer, 2014. "A geometric approach to revealed preference via Hamiltonian cycles," Theory and Decision, Springer, vol. 76(3), pages 329-341, March.
  8. Amit Kothiyal & Vitalie Spinu & Peter Wakker, 2014. "An experimental test of prospect theory for predicting choice under ambiguity," Journal of Risk and Uncertainty, Springer, vol. 48(1), pages 1-17, February.

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