A microeconometric test of alternative stochastic theories of risky choice

Loomes, Graham, Moffatt, Peter G. and Sugden, Robert (2002) A microeconometric test of alternative stochastic theories of risky choice. Journal of Risk and Uncertainty, 24 (2). pp. 103-130. ISSN 0895-5646

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Abstract

The random preference, Fechner (or ‘white noise’), and constant error (or ‘tremble’) models of stochastic choice under risk are compared. Various combinations of these approaches are used with expected utility and rank-dependent theory. The resulting models are estimated in a random effects framework using experimental data from two samples of 46 subjects who each faced 90 pairwise choice problems. The best fitting model uses the random preference approach with a tremble mechanism, in conjunction with rank-dependent theory. As subjects gain experience, trembles become less frequent and there is less deviation from behaviour consistent with expected utility theory.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences Faculty of Social Sciences > School of Economics
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Behavioural Economics Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences Faculty of Social Sciences > Research Groups > Economic Theory Faculty of Social Sciences > Research Centres > Centre for Competition Policy
Depositing User:	Vishal Gautam
Date Deposited:	01 Mar 2002
Last Modified:	22 Apr 2023 03:32
URI:	https://ueaeprints.uea.ac.uk/id/eprint/16676
DOI:	10.1023/A:1014094209265

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