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Rational expectation of mistakes and a measure of error-proneness

Author

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  • Ke, Shaowei

    (Department of Economics, University of Michigan)

Abstract

We characterize axiomatically a stochastic choice model, the Consistent-Mistakes Model (CMM), that describes an error-prone decision maker's choices. In contrast to random utility models, CMMs generate closed-form choice probability. Under the axioms, we uniquely identify from the choices an expected utility function that represents the decision maker's true preference and a propensity function that describes how likely an alternative is to be chosen. We introduce a measure of error-proneness and show that the logit model of mistakes is a CMM with a constant measure of error-proneness, characterized by a strong version of the independence axiom from expected utility theory. We analyze the properties of models of mistakes.

Suggested Citation

  • Ke, Shaowei, 2018. "Rational expectation of mistakes and a measure of error-proneness," Theoretical Economics, Econometric Society, vol. 13(2), May.
    • Handle: RePEc:the:publsh:2477
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    References listed on IDEAS

    as
    1. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
    2. Piermont, Evan & Takeoka, Norio & Teper, Roee, 2016. "Learning the Krepsian state: Exploration through consumption," Games and Economic Behavior, Elsevier, vol. 100(C), pages 69-94.
    3. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
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    Cited by:

    1. Mira Frick & Ryota Iijima & Tomasz Strzalecki, 2019. "Dynamic Random Utility," Econometrica, Econometric Society, vol. 87(6), pages 1941-2002, November.
    2. Ge, Ge & Godager, Geir, 2021. "Predicting strategic medical choices: An application of a quantal response equilibrium choice model," Journal of choice modelling, Elsevier, vol. 39(C).
    3. Ke, Shaowei, 2019. "Boundedly rational backward induction," Theoretical Economics, Econometric Society, vol. 14(1), January.

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    More about this item

    Keywords

    Stochastic choice; error-proneness; logit model;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General

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