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On the role of the utility function in the estimation of preference parameters
Author(s) -
Pignalosa Daria
Publication year - 2019
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12256
Subject(s) - prudence , economics , preference , estimation , elasticity of intertemporal substitution , econometrics , risk aversion (psychology) , utility theory , substitution (logic) , function (biology) , expected utility hypothesis , set (abstract data type) , elasticity of substitution , revealed preference , elasticity (physics) , microeconomics , mathematical economics , computer science , production (economics) , philosophy , theology , management , evolutionary biology , programming language , growth model , biology , materials science , composite material
Modern economic theory summarizes the main characteristics of individual preferences through a definite set of parameters: risk aversion, prudence, and the elasticity of intertemporal substitution. Despite their importance, the results of the literature devoted to the parameters’ estimation are controversial. This paper highlights the neglected role that may have been played by the constraints that the quantitative definition of the parameters and the utility functions employed impose on the estimation. A number of simulation exercises are presented, which show that the same saving behaviour can be associated with quite different values of the parameters depending on the utility function adopted.