Discrete Choice Estimation of Risk Aversion

Miguel Ballester and Jose Apesteguia

No 788, Working Papers from Barcelona School of Economics

Abstract: We analyze the use of discrete choice models for the estimation of risk aversion and show a fundamental flaw in the standard random utility model which is commonly used in the literature. Specifically, we find that given two gambles, the probability of selecting the riskier gamble may be larger for larger levels of risk aversion. We characterize when this occurs. By contrast, we show that the alternative random preference approach is free of such problems.

Keywords: Risk Aversion; structural estimation; discrete choice; random utility models; random preference models (search for similar items in EconPapers)
JEL-codes: C25 D81 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-dcm and nep-upt
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Discrete choice estimation of risk aversion (2014)
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