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Risk, Uncertainty and Discrete Choice Models

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Author Info
André de Palma () (THEMA,University of Cergy-Pontoise)
Moshe Ben-Akiva (Massachusetts Institute of Technology)
David Brownstone (University of California at Irvine)
Charles Holt (University of Virginia)
Thierry Magnac (Toulouse School of Economics)
Daniel McFadden (University of California, Berkeley)
Peter Moffatt (University of East Anglia)
Nathalie Picard () (University of Cergy-Pontoise)
Kenneth Train (University of California, Berkeley)
Peter Wakker (Erasmus University)
Joan Walker (Boston University)

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Abstract

This paper examines the cross-fertilizations of random utility models with the study of decision making under risk and uncertainty. We start with a description of the Expected Utility (EU) theory and then consider deviations from the standard EU frameworks, involving the Allais paradox and the Ellsberg paradox, inter alia. We then discuss how the resulting Non-EU framework can be modeled and estimated within the framework of discrete choices in static and dynamic contexts. Our objectives in addressing risk and ambiguity in individual choice contexts are to understand the decision choice process, and to use behavioral information for prediction, prescription and policy analysis.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2008-02.

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Date of creation: 2008
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Handle: RePEc:ema:worpap:2008-02

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Keywords: discrete choice decision making risk uncertainty (cumulative) prospect theory ambiguity

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  5. Heckman, James J. & Navarro, Salvador, 2007. "Dynamic discrete choice and dynamic treatment effects," Journal of Econometrics, Elsevier, vol. 136(2), pages 341-396, February. [Downloadable!] (restricted)
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  6. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  7. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
  8. Loomes, Graham & Moffatt, Peter G & Sugden, Robert, 2002. " A Microeconometric Test of Alternative Stochastic Theories of Risky Choice," Journal of Risk and Uncertainty, Springer, vol. 24(2), pages 103-30, March. [Downloadable!] (restricted)
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  9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
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  11. 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. [Downloadable!] (restricted)
  12. Arthur van Soest & Arie Kapteyn & Julie Zissimopoulos, 2007. "Using Stated Preferences Data to Analyze Preferences for Full and Partial Retirement," IZA Discussion Papers 2785, Institute for the Study of Labor (IZA). [Downloadable!]
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  13. Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-68, December. [Downloadable!] (restricted)
  14. Small, Kenneth A, 1987. "A Discrete Choice Model for Ordered Alternatives," Econometrica, Econometric Society, vol. 55(2), pages 409-24, March. [Downloadable!] (restricted)
  15. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-38, September. [Downloadable!] (restricted)
  16. Hugo Benítez-Silva & Debra S. Dwyer, 2005. "The Rationality of Retirement Expectations and the Role of New Information," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 587-592, November. [Downloadable!] (restricted)
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