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Separating Predicted Randomness from Residual Behavior

Author

Listed:
  • Jose Apesteguia
  • Miguel A Ballester

Abstract

We propose a novel measure of goodness of fit for stochastic choice models, that is, the maximal fraction of data that can be reconciled with the model. The procedure is to separate the data into two parts: one generated by the best specification of the model and another representing residual behavior. We claim that the three elements involved in a separation are instrumental in understanding the data. We show how to apply our approach to any stochastic choice model and then study the case of four well-known models, each capturing a different notion of randomness. We illustrate our results with an experimental data set.

Suggested Citation

  • Jose Apesteguia & Miguel A Ballester, 2021. "Separating Predicted Randomness from Residual Behavior," Journal of the European Economic Association, European Economic Association, vol. 19(2), pages 1041-1076.
    • Handle: RePEc:oup:jeurec:v:19:y:2021:i:2:p:1041-1076.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvaa016
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    Cited by:

    1. Apesteguia, Jose & Ballester, Miguel A., 2023. "Random utility models with ordered types and domains," Journal of Economic Theory, Elsevier, vol. 211(C).
    2. Victor H. Aguiar & Maria Jose Boccardi & Nail Kashaev & Jeongbin Kim, 2023. "Random utility and limited consideration," Quantitative Economics, Econometric Society, vol. 14(1), pages 71-116, January.
    3. Petri, Henrik, 2023. "Binary single-crossing random utility models," Games and Economic Behavior, Elsevier, vol. 138(C), pages 311-320.
    4. Kashaev, Nail & Aguiar, Victor H., 2022. "A random attention and utility model," Journal of Economic Theory, Elsevier, vol. 204(C).
    5. Leandro Nascimento, 2024. "Bounded arbitrage and nearly rational behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(4), pages 941-974, June.
    6. Georgios Gerasimou, 2020. "Decision Conflict, Power Logit, and the Deferral Outside Option," Papers 2008.04229, arXiv.org, revised Mar 2026.
    7. Leandro Nascimento, 2022. "Bounded arbitrage and nearly rational behavior," Papers 2212.02680, arXiv.org, revised Apr 2025.
    8. Doğan, Serhat & Yıldız, Kemal, 2021. "Odds supermodularity and the Luce rule," Games and Economic Behavior, Elsevier, vol. 126(C), pages 443-452.
    9. Efe A. Ok & Gerelt Tserenjigmid, 2023. "Measuring Stochastic Rationality," Papers 2303.08202, arXiv.org, revised Dec 2023.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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