Stochastically more risk averse: A contextual theory of stochastic discrete choice under risk

Nathaniel Wilcox

MPRA Paper from University Library of Munich, Germany

Abstract: Microeconometric treatments of discrete choice under risk are typically homoscedastic latent variable models. Specifically, choice probabilities are given by preference functional differences (given by expected utility, rank-dependent utility, etc.) embedded in cumulative distribution functions. This approach has a problem: Estimated utility function parameters meant to represent agents’ degree of risk aversion in the sense of Pratt (1964) do not imply a suggested “stochastically more risk averse” relation within such models. A new heteroscedastic model called “contextual utility” remedies this, and estimates in one data set suggest it explains (and especially predicts) as well or better than other stochastic models.

Keywords: risk; more risk averse; discrete choice; stochastic choice; heteroscedasticity (search for similar items in EconPapers)
JEL-codes: C25 C91 D81 (search for similar items in EconPapers)
Date: 2007-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Related works:
Journal Article: 'Stochastically more risk averse:' A contextual theory of stochastic discrete choice under risk (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11851

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