Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-52391
Bruhin, Adrian (2008). Stochastic Expected Utility and Prospect Theory in a Horse Race: A Finite Mixture Approach. Working paper series / Socioeconomic Institute No. 803, University of Zurich.
This study compares the performance of Prospect Theory versus Stochastic Expected Utility Theory at fitting data on decision making under risk. Both theories incorporate well-known deviations from Expected Utility Maximization such as the Allais paradox or the fourfold pattern of risk attitudes. Stochastic Expected Utility Theory parsimoniously extends the standard microeconomic model, whereas Prospect Theory, the benchmark for aggregate choice so far, is based on psychological findings. First, the two theories' fit to representative choice is assessed for two experimental data sets, one Swiss and one Chinese. In a second step, finite mixture regressions reveal a consistent mix of two different behavioral types suggesting that researchers may take individual heterogeneity into account in order to avoid aggregation bias.
278 downloads since deposited on 29 Nov 2011
104 downloads since 12 months
|Item Type:||Working Paper|
|Communities & Collections:||03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
|JEL Classification:||D81, C49|
|Deposited On:||29 Nov 2011 22:47|
|Last Modified:||09 Jul 2012 05:04|
|Series Name:||Working paper series / Socioeconomic Institute|
Users (please log in): suggest update or correction for this item
Repository Staff Only: item control page