Approximate Expected Utility Rationalization Article Swipe

PDF

Related Concepts

Rationalization (economics) Expected utility hypothesis Utility maximization Subjective expected utility Measure (data warehouse) Econometrics Utility theory Von Neumann–Morgenstern utility theorem Maximization Expected value Computer science Mathematical economics Economics Mathematics Microeconomics Statistics Data mining

Federico Echenique , Taisuke Imai , Kota Saito ·

YOU? · · 2021 · Open Access · · DOI: https://doi.org/10.48550/arxiv.2102.06331 · OA: W3133538647

We propose a new measure of deviations from expected utility theory. For any positive number~$e$, we give a characterization of the datasets with a rationalization that is within~$e$ (in beliefs, utility, or perceived prices) of expected utility theory. The number~$e$ can then be used as a measure of how far the data is to expected utility theory. We apply our methodology to data from three large-scale experiments. Many subjects in those experiments are consistent with utility maximization, but not with expected utility maximization. Our measure of distance to expected utility is correlated with subjects' demographic characteristics.