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Estimating Preference Parameters from Strictly Concave Budget Restrictions

Author

Listed:
  • Holger Gerhardt

    (University of Bonn)

  • Rafael Suchy

    (University of Oxford, UK)

Abstract

We propose an easy-to-use method for estimating preference parameters experimentally: choices from strictly concave budget restrictions (SCBRs). SCBRs generalize the popular method of analyzing choices from linear budget restrictions (LBRs). SCBRs promise (i) to improve the informational content of individual choices by reducing the number of corner allocations and (ii) to increase the range of identifiable behavioral types. Two online studies on risk and time preferences confirm the benefits of SCBRs vis-à-vis LBRs: (i) They reduce corner allocations drastically and make more participants estimable individually. (ii) They elicit a richer distribution of preference parameters, specifically, distinguishing linear from convex utility.

Suggested Citation

  • Holger Gerhardt & Rafael Suchy, 2024. "Estimating Preference Parameters from Strictly Concave Budget Restrictions," ECONtribute Discussion Papers Series 336, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:336
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_336_2024.pdf
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    References listed on IDEAS

    as
    1. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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