'Stochastically More Risk Averse:' A Contextual Theory of Stochastic Discrete Choice Under Risk
Document Type
Article
Publication Date
5-2011
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 as or better than other stochastic models.
Recommended Citation
Wilcox, N. "Stochastically More Risk Averse:' A contextual theory of stochastic discrete choice under risk." Journal of Econometrics, 162(1), p. 89-104, May, 2011.
DOI:10.1016/j.jeconom.2009.10.012
Peer Reviewed
1
Copyright
Elsevier
Comments
This article was originally published in Journal of Econometrics, volume 162, issue 1, in 2011.
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