Mixture models of choice under risk
Hey, John D. and Conte, Anna and Moffat, Peter G. (2007) Mixture models of choice under risk. [Working Paper]. p. 32. Discussion Papers in Economics (No. 07/06). (In Press)
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This paper is concerned with estimating preference functionals for choice under risk from the choice behaviour of individuals. We start from the observation that there is heterogeneity in behaviour between individuals and within individuals. By ‘heterogeneity between individuals’ we mean that people are different, not only in terms of which type of preference functional that they have, but also in terms of their parameters for these functionals. By ‘heterogeneity within individuals’ we mean that behaviour may be different even by the same individual for the same choice problem. Given the heterogeneity between individuals, the assumption of a ‘representative agent’ preference functional to represent the preference functional of all individuals may well lead to biased estimates. Given the heterogeneity within individuals, we should think carefully about the source of this heterogeneity and model it appropriately, for otherwise we get biased estimates. We propose solutions to both of these problems, concentrating particularly, but not exclusively, on using a Mixture Model to capture the heterogeneity of preference functionals across individuals.
|Item Type:||Report / Paper (Working Paper)|
|Research documents and activity classification:||Working Papers > Refereed Working Papers / of international relevance|
|Divisions:||Department of Business and Management|
|Additional Information:||The paper has been accepted by "Journal of Econometrics" (Elsevier). The article is available on-line under subscription (13 October 2009)|
|Uncontrolled Keywords:||expected utility theory, maximum simulated likelihood, Mixture models, rank dependent expected utility theory, heterogeneity.|
|MIUR Scientific Area:||Area 13 - Economics and Statistics > SECS-P/01 Political Economy|
|Deposited By:||Maria Teresa Nistico|
|Deposited On:||06 Dec 2010 15:02|
|Last Modified:||28 May 2013 20:35|
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- Mixture models of choice under risk. (deposited 27 Oct 2009 16:15)
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