Discrete choice estimation of risk aversion

Jose Apesteguia and Miguel Ballester

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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: Discrete Choice; Structural Estimation; Risk Aversion; Random Utility Models; Random Preference Models. (search for similar items in EconPapers)
JEL-codes: C25 D81 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-dcm, nep-ecm, nep-rmg 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 (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1443

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