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Random Discounted Expected Utility

Author

Listed:
  • Jose Apesteguia
  • Miguel A. Ballester
  • Ángelo Gutiérrez-Daza

Abstract

This paper introduces the random discounted expected utility (RDEU) model, which we have developed as a means to deal with heterogeneous risk and time preferences. The RDEU model provides an explicit linkage between preference and choice heterogeneity. We prove it has solid comparative statics, discuss its identification, and demonstrate its computational convenience. Finally, we use two distinct experimental datasets to illustrate the advantages of the RDEU model over common alternatives for estimating heterogeneity in preferences across individuals.

Suggested Citation

  • Jose Apesteguia & Miguel A. Ballester & Ángelo Gutiérrez-Daza, 2024. "Random Discounted Expected Utility," Working Papers 2024-03, Banco de México.
    • Handle: RePEc:bdm:wpaper:2024-03
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    File URL: https://www.banxico.org.mx/publications-and-press/banco-de-mexico-working-papers/%7B8691FF34-8374-C6BF-E547-2597547FA574%7D.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Heterogeneity; Risk Preferences; Time Preferences; Comparative Statics; Random Utility Models;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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