Identifying Preferences under Risk from Discrete Choices
When studying consumption choices, economists have often relied on the abstraction of a representative agent. Such an agent can indeed be shown to exist and to replicate the aggregate consumers' demand under standard, but not necessarily convincing assumptions (Kirman (1992)). There was also ajustifiable reluctance to introducing heterogeneous preferences, as such a step may seem ad hoc when trying to explain different consumption behaviors. The rise of empirical studies based on micro data has opened new perspectives. The micro-economic importance of uninsurable risks is now recognized, and threatens the foundations of the representative agent hypothesis often used in macroeconomics. The continuing controversies surrounding the question of individual attitudes towards risk has motivated many empirical studies and observations; most of them conclude to a bewildering diversity of individual preferences. This paper proposes to check the conditions under which heterogeneous individual attitudes toward risk can be non-parametrically identified from discrete data on choices under risk. Our main result establishes that given data that is usually available (essentially market shares of the different options, plus the realizations of the final outcomes of agents), the analyst can recover the whole distribution of individual preferences if this can be indexed by a one-dimensional parameter, provided that a fairly weak single-crossing condition holds. We then discuss several applications of our general methodology.
(This abstract was borrowed from another version of this item.)
|Date of creation:||May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+33) 5 61 12 86 23
Web page: http://www.toulouse.inra.fr/lerna/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lars Peter Hansen & Thomas J. Sargent, 2007. "Introduction to Robustness," Introductory Chapters, Princeton University Press.
- Alma Cohen & Liran Einav, 2005.
"Estimating Risk Preferences from Deductible Choice,"
NBER Working Papers
11461, National Bureau of Economic Research, Inc.
- Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
- Alma Cohen & Liran Einav, 2005. "Estimating Risk Preferences from Deductible Choice," Discussion Papers 04-031, Stanford Institute for Economic Policy Research.
- Bruno Jullien & Bernard Salanie, 2000.
"Estimating Preferences under Risk: The Case of Racetrack Bettors,"
Journal of Political Economy,
University of Chicago Press, vol. 108(3), pages 503-530, June.
- Bruno Jullien & Bernard Salanié, 1997. "Estimating Preferences under Risk : The Case of Racetrack Bettors," Working Papers 97-39, Centre de Recherche en Economie et Statistique.
- Pierre-André Chiappori & Bruno Jullien & Bernard Salanié & François Salanié, 2002.
"Asymmetric Information in Insurance : General Testable Implications,"
2002-42, Centre de Recherche en Economie et Statistique.
- Pierre‐André Chiappori & Bruno Jullien & Bernard Salanié & François Salanié, 2006. "Asymmetric information in insurance: general testable implications," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 783-798, December.
- anonymous, 2007. "Bank asset growth robust, statistics show," Financial Update, Federal Reserve Bank of Atlanta.
- repec:reg:rpubli:282 is not listed on IDEAS
- Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
- Rosen, Sherwin, 1988.
" The Value of Changes in Life Expectancy,"
Journal of Risk and Uncertainty,
Springer, vol. 1(3), pages 285-304, September.
- Sherwin Rosen, . "The Value of Changes in Life Expectancy," University of Chicago - Population Research Center 87-14, Chicago - Population Research Center.
- Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2005. "How Unobservable Productivity Biases the Value of a Statistical Life," NBER Working Papers 11659, National Bureau of Economic Research, Inc.
- Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency and Heterogeneity of Individual Behavior under Uncertainty," American Economic Review, American Economic Association, vol. 97(5), pages 1921-1938, December.
- Viscusi, W Kip & Aldy, Joseph E, 2003.
" The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World,"
Journal of Risk and Uncertainty,
Springer, vol. 27(1), pages 5-76, August.
- W. Kip Viscusi & Joseph E. Aldy, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," NBER Working Papers 9487, National Bureau of Economic Research, Inc.
- Bruno Jullien & Bernard Salanié & François Salanié, 2007. "Screening risk-averse agents under moral hazard: single-crossing and the CARA case," Economic Theory, Springer, vol. 30(1), pages 151-169, January.
- repec:rje:randje:v:37:y:2006:i:4:p:783-798 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:ler:wpaper:09.11.287. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxime MARTY)
If references are entirely missing, you can add them using this form.