Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/73864 
Year of Publication: 
2011
Series/Report no.: 
Working Papers in Economics and Statistics No. 2011-16
Publisher: 
University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon), Innsbruck
Abstract: 
Empirical research often requires a method how to convert a deterministic economic theory into an econometric model. A popular method is to add a random error term on the utility scale. This method, however, violates stochastic dominance. A modification of this method is proposed to avoid violations of dominance. The modified model compares favorably to other existing models in terms of goodness of fit to experimental data. The modified model can rationalize the preference reversal phenomenon. An intuitive axiomatic characterization of the modified model is provided. Important microeconomic concept of risk aversion is well-defined in the modified model.
Subjects: 
Decision Theory
Probabilistic Choice
Stochastic Dominance
Strong Utility
Risk Aversion
JEL: 
C25
D03
D81
Document Type: 
Working Paper

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