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Time Will Tell: Recovering Preferences When Choices Are Noisy

Author

Listed:
  • Carlos Alós-Ferrer
  • Ernst Fehr
  • Nick Netzer

Abstract

When choice is stochastic, revealed preference analysis often relies on random utility models. However, it is impossible to infer preferences without assumptions on the distribution of utility noise. We show that this difficulty can be overcome by using response time data. A simple condition on response time distributions ensures that choices reveal preferences without distributional assumptions. Standard models from economics and psychology generate data fulfilling this condition. Sharper results are obtained under symmetric or Fechnerian noise, where response times allow uncovering preferences or predicting choice probabilities out of sample. Application of our tools is simple and generates remarkable prediction accuracy.

Suggested Citation

  • Carlos Alós-Ferrer & Ernst Fehr & Nick Netzer, 2021. "Time Will Tell: Recovering Preferences When Choices Are Noisy," Journal of Political Economy, University of Chicago Press, vol. 129(6), pages 1828-1877.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/713732
    DOI: 10.1086/713732
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics

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