The Welfare Consequences of Individual-level Risk Preference Estimation

Brian Albert Monroe

A chapter in Models of Risk Preferences: Descriptive and Normative Challenges, 2023, vol. 22, pp 227-254 from Emerald Group Publishing Limited

Abstract: Risk preferences play a critical role in almost every facet of economic activity. Experimental economists have sought to infer the risk preferences of subjects from choice behavior over lotteries. To help mitigate the influence of observable, and unobservable, heterogeneity in their samples, risk preferences have been estimated at the level of the individual subject. Recent work has detailed the lack of statistical power in descriptively classifying individual subjects as conforming to Expected Utility Theory (EUT) or Rank Dependent Utility (RDU). I discuss the normative consequences of this lack of power and provide some suggestions to improve the accuracy of normative inferences about individual-level choice behavior.

Keywords: Rank Dependent Utility; Expected Utility Theory; risk preferences; welfare; statistical power; model selection (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rexezz:s0193-230620230000022005

DOI: 10.1108/S0193-230620230000022005

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