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Revealed preferences over risk and uncertainty

Listed author(s):
  • Matthew Polisson

    ()

    (University of St Andrews)

  • John K.-H. Quah

    ()

    (Johns Hopkins University)

  • Ludovic Renou

    ()

    (Queen Mary University of London)

We develop a nonparametric procedure, called the lattice method, for testing the consistency of contingent consumption data with a broad class of models of choice under risk and under uncertainty. Our method allows for risk loving and elation seeking behavior and can be used to calculate, via Afriat's efficiency index, the magnitude of violations from a particular model of choice. We evaluate the performance of different models (including expected utility, disappointment aversion, rank dependent utility, mean-variance utility, and stochastically monotone utility) in the data collected by Choi et al. (2007), in terms of pass rates, power, and predictive success.

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File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1706.pdf
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Paper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 201706.

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Date of creation: 29 Apr 2017
Date of revision: 30 May 2017
Handle: RePEc:san:wpecon:1706
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  1. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
  2. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
  3. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  4. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
  5. Varian, Hal R, 1988. "Estimating Risk Aversion from Arrow-Debreu Portfolio Choice," Econometrica, Econometric Society, vol. 56(4), pages 973-979, July.
  6. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  7. Hal R. Varian, 1983. "Non-parametric Tests of Consumer Behaviour," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 99-110.
  8. Hiroki Nishimura & Efe A. Ok & John K.-H. Quah, 2017. "A Comprehensive Approach to Revealed Preference Theory," American Economic Review, American Economic Association, vol. 107(4), pages 1239-1263, April.
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