Revealed preferences over risk and uncertainty
Consider a finite data set where each observation consists of a bunde of contingent consumption chosen by an agent from a constraint set of such bundles. We develop a general procedure for testing the consistency of this data set with a broad class of models of choice under risk and under uncertainty. Unlike previous work, we do not require that the agent has a convex preference, so we allow for risk loving and elation seeking behavior. Our procedure can also be extended to calculate the magnitude of violations from a particular model of choice, using an index first suggested by Afriat (1972, 1973). We then apply this index to evaluate different models (including expected utility and disappointment aversion) in the data collected by Choi et al. (2007). We show that more than half of all subjects exhibiting choice behavior consistent with utility maximization are also consistent with models of expected utility and disappointment aversion.
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- John Quah & Hiroki Nishimura & Efe A. Ok, 2015. "A Comprehensive Approach to Revealed Preference Theory," Economics Series Working Papers 752, University of Oxford, Department of Economics.
- Hiroki Nishimura & Efe A. Ok & John K.-H. Quah, 2016. "A Comprehensive Approach to Revealed Preference Theory," Working Papers 201614, University of California at Riverside, Department of Economics.