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Stochastic Choice and Revealed Perturbed Utility

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  • Drew Fudenberg
  • Ryota Iijima
  • Tomasz Strzalecki

Abstract

Perturbed utility functions—the sum of expected utility and a nonlinear perturbation function—provide a simple and tractable way to model various sorts of stochastic choice. We provide two easily understood conditions each of which characterizes this representation: One condition generalizes the acyclicity condition used in revealed preference theory, and the other generalizes Luce's IIA condition. We relate the discrimination or selectivity of choice rules to properties of their associated perturbations, both across different agents and across decision problems. We also show that these representations correspond to a form of ambiguity‐averse preferences for an agent who is uncertain about her true utility.
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Suggested Citation

  • Drew Fudenberg & Ryota Iijima & Tomasz Strzalecki, "undated". "Stochastic Choice and Revealed Perturbed Utility," Working Paper 136731, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:136731
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    File URL: http://scholar.harvard.edu/tomasz/node/136731
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    1. repec:eee:matsoc:v:93:y:2018:i:c:p:67-76 is not listed on IDEAS
    2. Victor H. Aguiar & Maria Jose Boccardi & Nail Kashaev & Jeongbin Kim, 2018. "Does Random Consideration Explain Behavior when Choice is Hard? Evidence from a Large-scale Experiment," Papers 1812.09619, arXiv.org.
    3. repec:eee:mateco:v:73:y:2017:i:c:p:122-131 is not listed on IDEAS
    4. Breitmoser, Yves, 2017. "Discrete Choice with Presentation Effects," Rationality and Competition Discussion Paper Series 35, CRC TRR 190 Rationality and Competition.
    5. Simone Cerreia-Vioglio & David Dillenberger & Pietro Ortoleva & Gil Riella, 2012. "Deliberately Stochastic," PIER Working Paper Archive 17-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 25 May 2017.
    6. repec:eee:ecolet:v:162:y:2018:i:c:p:27-29 is not listed on IDEAS
    7. repec:eee:pubeco:v:167:y:2018:i:c:p:240-250 is not listed on IDEAS
    8. Wei Ma, 2017. "Perturbed Utility and General Equilibrium Analysis," Working Papers 201701, University of Pretoria, Department of Economics.
    9. Ellison, Glenn & Fudenberg, Drew & Imhof, Lorens A., 2016. "Fast convergence in evolutionary models: A Lyapunov approach," Journal of Economic Theory, Elsevier, vol. 161(C), pages 1-36.
    10. repec:eee:ecolet:v:159:y:2017:i:c:p:46-52 is not listed on IDEAS
    11. Aguiar, Victor H., 2017. "Random categorization and bounded rationality," Economics Letters, Elsevier, vol. 159(C), pages 46-52.

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