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Some Econometric Problems in the Measurement of Utility
Author(s) -
Knowles Glenn J.
Publication year - 1984
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1240930
Subject(s) - econometrics , econometric model , index (typography) , function (biology) , term (time) , search engine indexing , economics , computer science , physics , quantum mechanics , evolutionary biology , artificial intelligence , world wide web , biology
Econometric problems in the measurement of utility are noted and solutions provided. When lotteries which are used to elicit risk preferences are chained or linked they compound error terms. If a utility index is constructed to estimate the utility function, the estimates will be inefficient and possibly biased. An econometric model that attaches an additive error term to the response of the decision maker and does not require indexing is shown to be a better alternative.