A Microeconometric Test of Alternative Stochastic Theories of Risky Choice
AbstractWe compare the random preference, Fechner, and constant error (or "tremble") approaches to the stochastic modelling of choice under risk. Various combinations of these approaches are used with expected utility and rank-dependent theory to generate a set of econometric models. These are estimated in a random effects framework using experimental data from two samples of 46 subjects who each faced 90 pairwise choice problems. The best fitting model uses the random preferences approach with an added tremble mechanism, in conjunction with rank-dependent theory. As subject gain experience, trembles become less frequent and there is less deviation from expected utility theory.
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Bibliographic InfoPaper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Discussion Papers in Economics with number 9806.
Length: 27 pages
Date of creation: 1998
Date of revision:
Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
Other versions of this item:
- 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.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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