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All Journal Gadjah Mada International Journal of Business
Yudistira Permana
Universitas Gadjah Mada
Economics, Econometrics & Finance

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Investigation of the Stochastic Choice under Risk using Experimental Data Yudistira Permana; Giovanni van Empel; Rimawan Pradiptyo
Gadjah Mada International Journal of Business Vol 22, No 2 (2020): May-August
Publisher : Master in Management, Faculty of Economics and Business, Universitas Gadjah Mada

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.22146/gamaijb.34446

Abstract

This paper extends the analysis of the data from the experiment undertaken by Pradiptyo et al. (2015), to help explain the subjects’ behaviour when making decisions under risk. This study specifically investigates the relative empirical performance of the two general models of the stochastic choice: the random utility model (RUM) and the random preference model (RPM) where this paper specifies these models using two preference functionals, expected utility (EU) and rank-dependent expected utility (RDEU). The parameters are estimated in each model using a maximum likelihood technique and run a horse-race using the goodness-of-fit between the models. The results show that the RUM better explains the subjects’ behaviour in the experiment. Additionally, the RDEU fits better than the EU for modelling the stochastic choice. 
Co-Authors Giovanni van Empel Rimawan Pradiptyo