Revealed preferences over risk and uncertainty

Matthew Polisson, John K.-H. Quah, Ludovic Renou

    Research output: Working paperDiscussion paper

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    Abstract

    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.
    Original languageEnglish
    Place of PublicationSt Andrews
    PublisherUniversity of St Andrews
    Number of pages59
    Publication statusPublished - 13 Sept 2017

    Publication series

    NameSchool of Economics and Finance Discussion Paper
    PublisherUniversity of St Andrews
    No.1706
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X

    Keywords

    • Expected utility
    • Rank dependent utility
    • Disappointment aversion
    • Bronars power
    • Predictive success
    • Generalized axiom of revealed preference
    • First order stochastic dominance
    • Mean-variance utility
    • Afriat's efficiency index

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