Revealed Preferences over Risk and Uncertainty

Matthew Polisson; John K.-H. Quah; Ludovic Renou

doi:10.1257/aer.20180210

Revealed Preferences over Risk and Uncertainty

Matthew Polisson, John K.-H. Quah, Ludovic Renou

School of Economics

Research output: Contribution to journal › Article (Academic Journal) › peer-review

31 Citations (Scopus)

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Abstract

We develop a nonparametric method called Generalized Restriction of Infinite Domains (GRID), for testing the consistency of budgetary choice data with models of choice under risk and under uncertainty. Our test can allow for risk loving and elation seeking attitudes, or it can require risk aversion. It can also be used to calculate, via Afriat's efficiency index, the magnitude of violations from a particular model. We evaluate the performance of various models under risk (expected utility, disappointment aversion, rank dependent utility, and stochastically monotone utility) using data collected from several recent portfolio choice experiments.

Original language	English
Pages (from-to)	1782-1820
Number of pages	39
Journal	American Economic Review
Volume	110
Issue number	6
DOIs	https://doi.org/10.1257/aer.20180210
Publication status	Published - 1 Jun 2020

Research Groups and Themes

ECON Microeconomic Theory

Keywords

Expected Utility
Rank Dependent Utility
Disappointment Aversion
Generalized Axiom of Revealed Preference
First Order Stochastic Dominance
Risk Aversion
Afriat Efficiency
Intertemporal Consumption

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Data and Code for: Revealed Preferences over Risk and Uncertainty
Polisson, M. (Creator), Quah, J.K.-H. (Creator) & Renou, L. (Creator), ICPSR - Interuniversity Consortium for Political and Social Research, 2020
DOI: 10.3886/e112146v1-24921, https://www.openicpsr.org/openicpsr/project/112146/version/V1/view?path=/openicpsr/112146/fcr:versions/V1/Figures.do&type=file
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title = "Revealed Preferences over Risk and Uncertainty",

abstract = "We develop a nonparametric method called Generalized Restriction of Infinite Domains (GRID), for testing the consistency of budgetary choice data with models of choice under risk and under uncertainty. Our test can allow for risk loving and elation seeking attitudes, or it can require risk aversion. It can also be used to calculate, via Afriat's efficiency index, the magnitude of violations from a particular model. We evaluate the performance of various models under risk (expected utility, disappointment aversion, rank dependent utility, and stochastically monotone utility) using data collected from several recent portfolio choice experiments. ",

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T1 - Revealed Preferences over Risk and Uncertainty

AU - Polisson, Matthew

AU - Quah, John K.-H.

AU - Renou, Ludovic

PY - 2020/6/1

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N2 - We develop a nonparametric method called Generalized Restriction of Infinite Domains (GRID), for testing the consistency of budgetary choice data with models of choice under risk and under uncertainty. Our test can allow for risk loving and elation seeking attitudes, or it can require risk aversion. It can also be used to calculate, via Afriat's efficiency index, the magnitude of violations from a particular model. We evaluate the performance of various models under risk (expected utility, disappointment aversion, rank dependent utility, and stochastically monotone utility) using data collected from several recent portfolio choice experiments.

AB - We develop a nonparametric method called Generalized Restriction of Infinite Domains (GRID), for testing the consistency of budgetary choice data with models of choice under risk and under uncertainty. Our test can allow for risk loving and elation seeking attitudes, or it can require risk aversion. It can also be used to calculate, via Afriat's efficiency index, the magnitude of violations from a particular model. We evaluate the performance of various models under risk (expected utility, disappointment aversion, rank dependent utility, and stochastically monotone utility) using data collected from several recent portfolio choice experiments.

KW - Expected Utility

KW - Rank Dependent Utility

KW - Disappointment Aversion

KW - Generalized Axiom of Revealed Preference

KW - First Order Stochastic Dominance

KW - Risk Aversion

KW - Afriat Efficiency

KW - Intertemporal Consumption

U2 - 10.1257/aer.20180210

DO - 10.1257/aer.20180210

M3 - Article (Academic Journal)

SN - 0002-8282

VL - 110

SP - 1782

EP - 1820

JO - American Economic Review

JF - American Economic Review

IS - 6

ER -

Revealed Preferences over Risk and Uncertainty

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Research Groups and Themes

Keywords

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