Revealed preferences over risk and uncertainty

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

Revealed preferences over risk and uncertainty

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

Research output: Working paper › Discussion paper

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 language	English
Place of Publication	St Andrews
Publisher	University of St Andrews
Number of pages	59
Publication status	Published - 13 Sept 2017

Publication series

Name	School of Economics and Finance Discussion Paper
Publisher	University 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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Cite this

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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.",

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AU - Polisson, Matthew

AU - Quah, John K.-H.

AU - Renou, Ludovic

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N2 - 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.

AB - 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.

KW - Expected utility

KW - Rank dependent utility

KW - Disappointment aversion

KW - Bronars power

KW - Predictive success

KW - Generalized axiom of revealed preference

KW - First order stochastic dominance

KW - Mean-variance utility

KW - Afriat's efficiency index

UR - https://ideas.repec.org/p/san/wpecon/1706.html

M3 - Discussion paper

T3 - School of Economics and Finance Discussion Paper

BT - Revealed preferences over risk and uncertainty

PB - University of St Andrews

CY - St Andrews

ER -

Revealed preferences over risk and uncertainty

Abstract

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Keywords

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