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 (EU) theory, under the assumption of risk aversion. The number e can then be used as a measure of how far the data is to EU theory. We apply our methodology to data from three large-scale experiments. Many subjects in these experiments are consistent with utility maximization, but not with EU maximization. Our measure of distance to expected utility is correlated with the subjects’ demographic characteristics.
MULTIATTRIBUTE UTILITY THEORY, INTERTEMPORAL UTILITY, AND CORRELATION AVERSION
Convenient assumptions about qualitative properties of the intertemporal utility function have generated counterintuitive implications for the relationship between atemporal risk aversion and the intertemporal elasticity of substitution. If the intertemporal utility function is additively separable, then the latter two concepts are the inverse of each other. We review a theoretical specification with a long lineage in the literature on multi‐attribute utility and use this theoretical structure to guide the design of a series of experiments that allow us to identify and estimate intertemporal correlation aversion. Our results show that subjects are correlation averse over lotteries with intertemporal income profiles.
more » « less- NSF-PAR ID:
- 10077899
- Publisher / Repository:
- Wiley-Blackwell
- Date Published:
- Journal Name:
- International Economic Review
- Volume:
- 59
- Issue:
- 2
- ISSN:
- 0020-6598
- Page Range / eLocation ID:
- p. 537-555
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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