Monotone stochastic choice models: The case of risk and time preferences
Jose Apesteguia () and
Miguel Ballester ()
Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Suppose that, when evaluating two alternatives x and y by means of a parametric utility function, low values of the parameter indicate a preference for x and high values indicate a preference for y. We say that a stochastic choice model is monotone whenever the probability of choosing x is decreasing in the preference parameter. We show that the standard use of random utility models in the context of risk and time preferences may sharply violate this monotonicity property, and argue that their use in preference estimation may be problematic. In particular, they may pose identification problems and yield biased estimations. We then establish that the alternative random parameter models, in contrast, are always monotone. We show in an empirical application that standard risk-aversion assessments may be severely biased.
Keywords: Stochastic Choice; Preference Parameters; Random Utility Models; Random Parameter Models; Risk Aversion; Delay Aversion. (search for similar items in EconPapers)
JEL-codes: C25 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
https://econ-papers.upf.edu/papers/1499.pdf Whole Paper (application/pdf)
Journal Article: Monotone Stochastic Choice Models: The Case of Risk and Time Preferences (2018)
Working Paper: Monotone Stochastic Choice Models: The Case of Risk and Time Preferences (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1499
Access Statistics for this paper
More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).