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Risk, uncertainty and discrete choice models

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Abstract

This paper examines the cross-fertilizations of random utility models with the study of decision making under risk and uncertainty. We start with a description of the expected utility (EU) theory and then consider deviations from the standard EU frameworks, involving the Allais paradox and the Ellsberg paradox, inter alia. We then discuss how the resulting non-EU framework can be modeled and estimated within the framework of discrete choices in static and dynamic contexts. Our objectives in addressing risk and ambiguity in individual choice contexts are to understand the decision choice process and to use behavioral information for prediction, prescription, and policy analysis.

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Acknowledgment

We benefited from the advice and comments of Mohammed Abdellaoui and Robin Lindsey, and from the editorial assistance of Leanne Russell. Eric Bradlow’s and Robert Meyer’s suggestions were very helpful for improving the first draft of the paper. Finally, André de Palma and Nathalie Picard would like to thank RiskAttitude, ANR (FR) program, for supporting financially the June 2007 meeting.

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Authors and Affiliations

  1. Université de Cergy-Pontoise, 33, boulevard du Port, 95011, Cergy-Pontoise Cedex, France

    Andre de Palma & Nathalie Picard

  2. Massachusetts Institute of Technology, Cambridge, MA, USA

    Moshe Ben-Akiva

  3. University of California at Irvine, Irvine, CA, USA

    David Brownstone

  4. University of Virginia, Charlottesville, VA, USA

    Charles Holt

  5. Toulouse School of Economics, Toulouse Cedex 9, France

    Thierry Magnac

  6. University of California, Berkeley, CA, USA

    Daniel McFadden & Kenneth Train

  7. University of East Anglia, Norwich, Norfolk, UK

    Peter Moffatt

  8. Erasmus University, Rotterdam, The Netherlands

    Peter Wakker

  9. Boston University, Boston, MA, USA

    Joan Walker

Authors
  1. Andre de Palma
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  2. Moshe Ben-Akiva
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  3. David Brownstone
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  4. Charles Holt
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  5. Thierry Magnac
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  6. Daniel McFadden
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  7. Peter Moffatt
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  8. Nathalie Picard
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  9. Kenneth Train
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  10. Peter Wakker
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  11. Joan Walker
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Correspondence to Andre de Palma.

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de Palma, A., Ben-Akiva, M., Brownstone, D. et al. Risk, uncertainty and discrete choice models. Mark Lett 19, 269–285 (2008). https://doi.org/10.1007/s11002-008-9047-0

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