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Approximate Expected Utility Rationalization

Federico Echenique (), Taisuke Imai and Kota Saito
Additional contact information
Taisuke Imai: LMU Munich
Kota Saito: California Institute of Technology

No 103, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We propose a new measure of deviations from expected utility, given data on economic choices under risk and uncertainty. In a revealed preference setup, and given a positive number e, we provide a characterization of the datasets whose deviation (in beliefs, utility, or perceived prices) is within e of expected utility theory. The number e can then be used as a distance to the theory. We apply our methodology to three recent large-scale experiments. Many subjects in those experiments are consistent with utility maximization, but not expected utility maximization. The correlation of our measure with demographics is also interesting, and provides new and intuitive findings on expected utility.

Keywords: expected utility; revealed preference (search for similar items in EconPapers)
JEL-codes: D01 D81 (search for similar items in EconPapers)
Date: 2018-06-26
New Economics Papers: this item is included in nep-upt
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Working Paper: Approximate Expected Utility Rationalization (2021) Downloads
Working Paper: Approximate Expected Utility Rationalization (2018) Downloads
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