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American Economic Review Vol. 97 No. 5 2007

Consistency and Heterogeneity of Individual Behavior under Uncertainty

Syngjoo Choi1; Raymond Fisman2; Douglas Gale3; Shachar Kariv4

1 Department of Economics, University College London, Gower Street, London WC1E 6BT, UK. · 2 Graduate School of Business, Columbia University, Uris 823, New York, NY 10027. · 3 Department of Economics, New York University, 19 W. 4th St., New York, NY 10012. · 4 Department of Economics, University of California, Berkeley, Evans Hall # 3880, Berkeley, CA 94720.

Abstract

By using graphical representations of simple portfolio choice problems, we generate a very rich dataset 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.

DOI
10.1257/aer.97.5.1921
Volume
97
Issue
5
Pages
1921-1938
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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