Non-parametric estimation of the individual's utility map

Abstract

Models of risky choice have attracted much attention in behavioural economics. Previous research has repeatedly demonstrated that individuals' choices are not well explained by expected utility theory, and a number of alternative models have been examined using carefully selected sets of choice alternatives. The model performance however, can depend on which choice alternatives are being tested. Here we develop a non-parametric method for estimating the utility map over the wide range of choice alternatives. The estimated maps are compared against the three of the most well-known models of risky choice: expected utility theory, cumulative prospect theory, and the transfer of attention exchange model. Model comparison indicates that cumulative prospect theory provides a better prediction of individuals' choices, but the estimated maps show that the overall shape of utility map is different from what the model predicts.

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