'Stochastically more risk averse:' A contextual theory of stochastic discrete choice under risk

Nathaniel Wilcox

Journal of Econometrics, 2011, vol. 162, issue 1, 89-104

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.

Keywords: Risk; More; risk; averse; Discrete; choice; Stochastic; choice; Heteroscedasticity (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (151)

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Working Paper: Stochastically more risk averse: A contextual theory of stochastic discrete choice under risk (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:162:y:2011:i:1:p:89-104

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