Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/224022
Authors: 
Gao, Xiaoxue Sherry
Harrison, Glenn
Tchernis, Rusty
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13580
Abstract: 
We propose the use of Bayesian estimation of risk preferences of individuals for applications of behavioral welfare economics to evaluate observed choices that involve risk. Bayesian estimation provides more systematic control of the use of informative priors over inferences about risk preferences for each individual in a sample. We demonstrate that these methods make a difference to the rigorous normative evaluation of decisions in a case study of insurance purchases. We also show that hierarchical Bayesian methods can be used to infer welfare reliably and efficiently even with significantly reduced demands on the number of choices that each subject has to make. Finally, we illustrate the natural use of Bayesian methods in the adaptive evaluation of welfare.
Subjects: 
behavioral welfare economics
Bayesian Analysis
risk preferences
insurance
JEL: 
D6
C11
D81
G40
Document Type: 
Working Paper

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