Revealed Preferences over Risk and Uncertainty | Zendy

Matthew Polisson | Zendy; John Quah | Zendy; Ludovic Renou | Zendy

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Revealed Preferences over Risk and Uncertainty

Author(s) -

Matthew Polisson,

John Quah,

Ludovic Renou

Publication year - 2020

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20180210

Subject(s) - risk aversion (psychology) , econometrics , economics , expected utility hypothesis , nonparametric statistics , disappointment , portfolio , consistency (knowledge bases) , preference , time consistency , mathematical economics , ambiguity aversion , actuarial science , mathematics , computer science , microeconomics , financial economics , psychology , social psychology , ambiguity , geometry , programming language

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. (JEL C14, D11, D12, D81)

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