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Models of stochastic choice and decision theories: why both are important for analyzing decisions

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  • Pavlo R. Blavatskyy

    (Institute of Public Finance, University of Innsbruck, Innsbruck, Austria)

  • Ganna Pogrebna

    (Columbia University, Institute for Social and Economic Research and Policy, New York, USA)

Abstract

We select a menu of seven popular decision theories and embed each theory in five models of stochastic choice, including tremble, Fechner and random utility model. We find that the estimated parameters of decision theories differ significantly when theories are combined with different models. Depending on the selected model of stochastic choice we obtain different rankings of decision theories with regard to their goodness of fit to the data. The fit of all analyzed decision theories improves significantly when they are embedded in a Fechner model of heteroscedastic truncated errors or a random utility model. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Pavlo R. Blavatskyy & Ganna Pogrebna, 2010. "Models of stochastic choice and decision theories: why both are important for analyzing decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 963-986.
  • Handle: RePEc:jae:japmet:v:25:y:2010:i:6:p:963-986
    DOI: 10.1002/jae.1116
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Andrew Caplin & Mark Dean & Daniel Martin, 2011. "Search and Satisficing," American Economic Review, American Economic Association, vol. 101(7), pages 2899-2922, December.
    2. Guido Baltussen & G. Post & Martijn Assem & Peter Wakker, 2012. "Random incentive systems in a dynamic choice experiment," Experimental Economics, Springer;Economic Science Association, vol. 15(3), pages 418-443, September.
    3. Navarro-Martinez, Daniel & Loomes, Graham & Isoni, Andrea & Butler, David & Alaoui, Larbi, 2017. "Boundedly Rational Expected Utility Theory," MPRA Paper 79893, University Library of Munich, Germany.
    4. Blavatskyy, Pavlo R., 2012. "Utility of a quarter-million," Economics Letters, Elsevier, vol. 117(3), pages 650-653.
    5. Blavatskyy, Pavlo, 2015. "Behavior in the centipede game: A decision-theoretical perspective," Economics Letters, Elsevier, vol. 133(C), pages 117-122.
    6. repec:kap:theord:v:82:y:2017:i:3:d:10.1007_s11238-016-9567-7 is not listed on IDEAS
    7. Breitmoser, Yves, 2015. "Knowing me, imagining you: Projection and overbidding in auctions," MPRA Paper 62052, University Library of Munich, Germany.
    8. Nathaniel T. Wilcox, 2017. "Random expected utility and certainty equivalents: mimicry of probability weighting functions," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 3(2), pages 161-173, December.
    9. Pavlo R. Blavatskyy, 2016. "Risk preferences of Australian academics: where retirement funds are invested tells the story," Theory and Decision, Springer, vol. 80(3), pages 411-426, March.
    10. Breitmoser, Yves, 2017. "Knowing Me, Imagining You:," Rationality and Competition Discussion Paper Series 36, CRC TRR 190 Rationality and Competition.
    11. Graham Loomes & Ganna Pogrebna, 2014. "Testing for independence while allowing for probabilistic choice," Journal of Risk and Uncertainty, Springer, vol. 49(3), pages 189-211, December.
    12. Pavlo Blavatskyy, 2014. "Stronger utility," Theory and Decision, Springer, vol. 76(2), pages 265-286, February.
    13. David Butler & Andrea Isoni & Graham Loomes, 2012. "Testing the ‘standard’ model of stochastic choice under risk," Journal of Risk and Uncertainty, Springer, vol. 45(3), pages 191-213, December.
    14. Blavatskyy, Pavlo, 2016. "Probability weighting and L-moments," European Journal of Operational Research, Elsevier, vol. 255(1), pages 103-109.
    15. Pavlo R. Blavatskyy, 2011. "A Model of Probabilistic Choice Satisfying First-Order Stochastic Dominance," Management Science, INFORMS, vol. 57(3), pages 542-548, March.
    16. repec:kap:theord:v:84:y:2018:i:1:d:10.1007_s11238-017-9629-5 is not listed on IDEAS
    17. Caspar G. Chorus, 2014. "Capturing alternative decision rules in travel choice models: a critical discussion," Chapters,in: Handbook of Choice Modelling, chapter 13, pages 290-310 Edward Elgar Publishing.

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