Revealed Preferences over Risk and Uncertainty
Matthew Polisson, John K.-H. Quah, Ludovic Renou
American Economic Review · 2020 · Volume 110 · Issue 6
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.
Keywords
Semiparametric and Nonparametric Methods: General, Consumer Economics: Theory, Consumer Economics: Empirical Analysis, Criteria for Decision-Making under Risk and Uncertainty
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