Kontek, Krzysztof (2015): Continuous or Discontinuous? Estimating Indifference Curves Inside the MarschakMachina Triangle using Certainty Equivalents.
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Abstract
This paper presents results of a study, which shed new light on the shape of indifference curves in the MarschakMachina triangle. The most important observation concerns (possibly discontinuous) jumps in indifference curves at the triangle legs towards the triangle origin. Such jumps, however, do not appear at the triangle hypotenuse. This points out to discontinuity in the lottery valuation when the range of the lottery outcomes changes. This observation is confirmed by an econometric analysis of six decisionmaking models: those models, which correctly predict jumps at the triangle legs, offer the best fit of the data collected. Focusing attention to the range of lottery outcomes appears thus one of the most important factors driving decisions under risk. The study has been made using a novel method of estimating indifference curves, which is based on linear interpolation of certainty equivalent values between adjacent points representing the lotteries under consideration.
Item Type:  MPRA Paper 

Original Title:  Continuous or Discontinuous? Estimating Indifference Curves Inside the MarschakMachina Triangle using Certainty Equivalents. 
Language:  English 
Keywords:  MarschakMachina triangle, indifference curves, fanningout, fanningin, models of decisionmaking under risk, certainty equivalents 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C14  Semiparametric and Nonparametric Methods: General C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology ; Computer Programs > C81  Methodology for Collecting, Estimating, and Organizing Microeconomic Data ; Data Access C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology ; Computer Programs > C88  Other Computer Software C  Mathematical and Quantitative Methods > C9  Design of Experiments > C91  Laboratory, Individual Behavior D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty 
Item ID:  64408 
Depositing User:  Krzysztof Kontek 
Date Deposited:  17 May 2015 19:40 
Last Modified:  26 Sep 2019 10:46 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/64408 
Available Versions of this Item

FanningOut or FanningIn? Continuous or Discontinuous? Estimating Indifference Curves Inside the MarschakMachina Triangle using Certainty Equivalents. (deposited 29 Apr 2015 06:34)
 Continuous or Discontinuous? Estimating Indifference Curves Inside the MarschakMachina Triangle using Certainty Equivalents. (deposited 17 May 2015 19:40) [Currently Displayed]