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Stochastically more risk averse: A contextual theory of stochastic discrete choice under risk

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Author Info
Wilcox, Nathaniel

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Abstract

Microeconometric treatments of discrete choice under risk are typically homoscedastic latent variable models. Specifically, choice probabilities are given by preference functional differences (given by expected utility, rank-dependent utility, etc.) embedded in cumulative distribution functions. This approach has a problem: Estimated utility function parameters meant to represent agents’ degree of risk aversion in the sense of Pratt (1964) do not imply a suggested “stochastically more risk averse” relation within such models. A new heteroscedastic model called “contextual utility” remedies this, and estimates in one data set suggest it explains (and especially predicts) as well or better than other stochastic models.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11851.

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Date of creation: Nov 2007
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Handle: RePEc:pra:mprapa:11851

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Related research
Keywords: risk; more risk averse; discrete choice; stochastic choice; heteroscedasticity;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Glenn W Harrison, 2008. "Neuroeconomics: A Critical Reconsideration," Levine's Working Paper Archive 122247000000001915, David K. Levine. [Downloadable!]
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