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Investigation of the Stochastic Choice under Risk using Experimental Data

Year: 2019

Type: article

Abstract: This paper extends the analysis of the data from the experiment undertaken by Pradiptyo et al. (2015), to help explain the subjects’ behaviour when making decisions under risk. This study specifically investigates the relative empirical performance of the two general models of the stochastic choice: the random utility model (RUM) and the random preference model (RPM) where this paper specifies these models using two preference functionals, expected utility (EU) and rank-dependent expected utility (RDEU). The parameters are estimated in each model using a maximum likelihood technique and run a horse-race using the goodness-of-fit between the models. The results show that the RUM better explains the subjects’ behaviour in the experiment. Additionally, the RDEU fits better than the EU for modelling the stochastic choice.

Source: Gadjah Mada International Journal of Business

DOI: 10.2139/ssrn.3397940

Authors: Yudistira Hendra Permana, Giovanni van Empel, Rimawan Pradiptyo

Institution: Universitas Gadjah Mada

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: diamond

OpenAlex ID: W3082712078

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