Stochastic choice, systematic mistakes and preference estimation

Breitmoser, Yves (2016): Stochastic choice, systematic mistakes and preference estimation.

Abstract

Individual choice exhibits "presentation effects" such as default, ordering and round-number effects. Using existing models, presentation effects bias utility estimates, which suggests instability of preferences and obscures behavioral patterns. This paper derives a generalized model of stochastic choice by weakening logit's axiomatic foundation. Weakening the axioms implies that focality of options is choice-relevant, alongside utility, which entails presentation effects. The model is tested on four well-known studies of dictator games exhibiting typical round-number patterns. The generalized logit model captures the choice patterns reliably, substantially better than existing models: it robustly predicts and controls for the round-number effects, thus provides "clean" utility estimates that are stable and predictive across experiments.

• Item Type: MPRA Paper
• Language: English
• Keywords: stochastic choice, systematic mistakes, axiomatic foundation, utility estimation, dictator game
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C90 - General; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

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