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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)

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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Bibliographic Info

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

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Related research

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

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References

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  1. James J. Heckman & Salvador Navarro, 2005. "Dynamic Discrete Choice and Dynamic Treatment Effects," NBER Technical Working Papers 0316, National Bureau of Economic Research, Inc.
  2. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, October.
  3. Loomes, G. & Moffatt, P.G. & Sugden, R., 1998. "A Microeconometric Test of Alternative Stochastic Theories of Risky Choice," University of East Anglia Discussion Papers in Economics 9806, School of Economics, University of East Anglia, Norwich, UK..
  4. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
  5. Small, Kenneth A, 1987. "A Discrete Choice Model for Ordered Alternatives," Econometrica, Econometric Society, vol. 55(2), pages 409-24, March.
  6. Arthur van Soest & Arie Kapteyn & Julie Zissimopoulos, 2006. "Using Stated Preferences Data to Analyze Preferences for Full and Partial Retirement," DNB Working Papers 081, Netherlands Central Bank, Research Department.
  7. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  8. Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Sonderforschungsbereich 504 Publications 03-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  9. Lam, T.C. & Small, K.A., 2000. "The Value of Time and Reliability: Measurement from a Value Pricing Experiment," Papers 00-02, California Irvine - School of Social Sciences.
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  21. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
  22. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
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Citations

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Cited by:
  1. Ignacio A. Inoa & Nathalie Picard & André De Palma, 2013. "Commuting Time and Accessibility in a Joint Residential Location, Workplace, and Job Type Choice Model," Working Papers hal-00776945, HAL.
  2. de Moraes Ramos, Giselle & Daamen, Winnie & Hoogendoorn, Serge, 2013. "Modelling travellers' heterogeneous route choice behaviour as prospect maximizers," Journal of choice modelling, Elsevier, vol. 6(C), pages 17-33.
  3. Herriges, Joseph A. & Bhattacharjee, Subhra & Kling, Catherine L., 2011. "Capturing Preferences Under Incomplete Scenarios Using Elicited Choice Probabilities," Staff General Research Papers 32626, Iowa State University, Department of Economics.
  4. Xiao, Yu & Fukuda, Daisuke, 2013. "On the cost of misperceived travel time variability," MPRA Paper 49737, University Library of Munich, Germany.
  5. Klaus Glenk & Sergio Colombo, 2013. "Modelling outcome-related risk in choice experiments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(4), pages 559-578, October.
  6. Greene, David L., 2011. "Uncertainty, loss aversion, and markets for energy efficiency," Energy Economics, Elsevier, vol. 33(4), pages 608-616, July.
  7. Nguyen, Quang, 2009. "Do fishermen have different preferences?: Insights from an experimental study and household data," MPRA Paper 16012, University Library of Munich, Germany.
  8. André De Palma & Nathalie Picard & Jean-Luc Prigent, 2010. "Eliciting Utility for (Non)Expected Utility Preferences Using Invariance Transformations," Working Papers hal-00517726, HAL.
  9. Quang Nguyen, 2011. "Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 245-270, December.
  10. Liya Guo & Shan Huang & Jun Zhuang & Adel Sadek, 2013. "Modeling Parking Behavior Under Uncertainty: A Static Game Theoretic versus a Sequential Neo-additive Capacity Modeling Approach," Networks and Spatial Economics, Springer, vol. 13(3), pages 327-350, September.
  11. Börjesson, Maria & Eliasson, Jonas, 2014. "Experiences from the Swedish Value of Time study," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 144-158.
  12. André De Palma & Robin Lindsey & Nathalie Picard, 2008. "Risk aversion, the value of information and traffic equilibrium," Working Papers hal-00349492, HAL.
  13. Börjesson, Maria & Eliasson, Jonas, 2011. "On the use of "average delay" as a measure of train reliability," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(3), pages 171-184, March.
  14. André De Palma & Nathalie Picard & Jean-Luc Prigent, 2009. "Prise en compte de l'attitude face au risque dans le cadre de la directive MiFID," Working Papers hal-00418892, HAL.
  15. Ignacio Inoa & Nathalie Picard & André De Palma, 2014. "Effect of an Accessibility Measure in a Model for Choice of Residential Location, Workplace, and Type of Employment," Working Papers hal-00964212, HAL.
  16. Kemel, Emmanuel & Paraschiv, Corina, 2013. "Prospect Theory for joint time and money consequences in risk and ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 81-95.

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