"Consistency and Heterogeneity of Individual Behavior under Uncertainty"
©
American Economic Review,
2007
Volume: 97
|
Issue: 5
|
Pages: 1921-1938
Publication type: Journal article
Research Archive Topic: Business Economics and Public Policy, Corporate Finance
Abstract
By using graphical representations of simple portfolio choice problems, we generate a very rich data set to study behavior under uncertainty at the level of the individual subject. We test the data for consistency with the maximization hypothesis, and we estimate preferences using a two-parameter utility function based on Faruk Gul (1991). This specification provides a good interpretation of the data at the individual level and can account for the highly heterogeneous behaviors observed in the laboratory. The parameter estimates jointly describe attitudes toward risk and allow us to characterize the distribution of risk preferences in the population.
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