An approximate dual-self model and paradoxes of choice under risk

Drew Fudenberg, David Levine and Zacharias Maniadis

No 2012-034, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We derive a simplified version of the model of Fudenberg and Levine [2006, 2011] and show how this approximate model is useful in explaining choice under risk. We show that in the simple case of three outcomes, the model can generate indifference curves that ?fan out? in the Marshack-Machina triangle, and thus can explain the well-known Allais and common ratio paradoxes that models such as prospect theory and regret theory are designed to capture. At the same time, our model is consistent with modern macroeconomic theory and evidence and generates predictions across a much wider set of domains than these models.

Keywords: Macroeconomics; -; Econometric; models (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-bec, nep-mac and nep-mic
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Related works:
Journal Article: An approximate dual-self model and paradoxes of choice under risk (2014)
Working Paper: An approximate dual-self model and paradoxes of choice under risk (2014)
Working Paper: An Approximate Dual-Self Model and Paradoxes of Choice under Risk (2012)
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DOI: 10.20955/wp.2012.034

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