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Random Utility Models with Ordered Types and Domains

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  • Jose Apesteguia
  • Miguel Ángel Ballester

Abstract

We study random utility models in which heterogeneity of preferences is modeled using an ordered collection of utilities, or types. The paper shows that these models are particularly amenable when combined with domains in which the alternatives of each decision problem are ordered by the structure of the types. We enhance their applicability by: (i) working with arbitrary domains composed of such decision problems, i.e., we do not need to assume any particularly rich data domain, and (ii) making no parametric assumption, i.e., we do not need to formulate any particular assumption on the distribution over the collection of types. We characterize the model by way of two simple properties and show the applicability of our result in settings involving decisions under risk. We also propose a goodness-of- t measure for the model and prove the strong consistency of extremum estimators defined upon it. We conclude by applying the model to a dataset on lottery choices.

Suggested Citation

  • Jose Apesteguia & Miguel Ángel Ballester, 2020. "Random Utility Models with Ordered Types and Domains," Working Papers 1176, Barcelona School of Economics.
  • Handle: RePEc:bge:wpaper:1176
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    References listed on IDEAS

    as
    1. 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.
    2. Ola Andersson & Håkan J. Holm & Jean-Robert Tyran & Erik Wengström, 2020. "Robust inference in risk elicitation tasks," Journal of Risk and Uncertainty, Springer, vol. 61(3), pages 195-209, December.
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    4. Jose Apesteguia & Miguel A Ballester, 0. "Separating Predicted Randomness from Residual Behavior," Journal of the European Economic Association, European Economic Association, vol. 19(2), pages 1041-1076.
    5. Tomáš Jagelka, 2020. "Are Economists’ Preferences Psychologists’ Personality Traits? A Structural Approach," ECONtribute Discussion Papers Series 014, University of Bonn and University of Cologne, Germany.
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    7. Greene,William H. & Hensher,David A., 2010. "Modeling Ordered Choices," Cambridge Books, Cambridge University Press, number 9780521142373.
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    More about this item

    Keywords

    random utility model; ordered type-dependent utilities; arbitrary domains; non-parametric; goodness-of-fit; extremum estimators; decision under risk;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • D00 - Microeconomics - - General - - - General

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