Stochastic models for binary discrete choice under risk: a critical primer and econometric comparison

Nathaniel Wilcox

A chapter in Risk Aversion in Experiments, 2008, pp 197-292 from Emerald Group Publishing Limited

Abstract: Choice under risk has a large stochastic (unpredictable) component. This chapter examines five stochastic models for binary discrete choice under risk and how they combine with “structural” theories of choice under risk. Stochastic models are substantive theoretical hypotheses that are frequently testable in and of themselves, and also identifying restrictions for hypothesis tests, estimation and prediction. Econometric comparisons suggest that for the purpose of prediction (as opposed to explanation), choices of stochastic models may be far more consequential than choices of structures such as expected utility or rank-dependent utility.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rexezz:s0193-2306(08)00004-5

DOI: 10.1016/S0193-2306(08)00004-5

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