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Marketing Letters

, Volume 19, Issue 3–4, pp 269–285 | Cite as

Risk, uncertainty and discrete choice models

  • Andre de Palma
  • Moshe Ben-Akiva
  • David Brownstone
  • Charles Holt
  • Thierry Magnac
  • Daniel McFadden
  • Peter Moffatt
  • Nathalie Picard
  • Kenneth Train
  • Peter Wakker
  • Joan Walker
Article

Abstract

This paper examines the cross-fertilizations of random utility models with the study of decision making under risk and uncertainty. We start with a description of the expected utility (EU) theory and then consider deviations from the standard EU frameworks, involving the Allais paradox and the Ellsberg paradox, inter alia. We then discuss how the resulting non-EU framework can be modeled and estimated within the framework of discrete choices in static and dynamic contexts. Our objectives in addressing risk and ambiguity in individual choice contexts are to understand the decision choice process and to use behavioral information for prediction, prescription, and policy analysis.

Keywords

Discrete choice Decision making Risk Uncertainty (Cumulative) prospect theory Ambiguity 

Notes

Acknowledgment

We benefited from the advice and comments of Mohammed Abdellaoui and Robin Lindsey, and from the editorial assistance of Leanne Russell. Eric Bradlow’s and Robert Meyer’s suggestions were very helpful for improving the first draft of the paper. Finally, André de Palma and Nathalie Picard would like to thank RiskAttitude, ANR (FR) program, for supporting financially the June 2007 meeting.

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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  • Andre de Palma
    • 1
  • Moshe Ben-Akiva
    • 2
  • David Brownstone
    • 3
  • Charles Holt
    • 4
  • Thierry Magnac
    • 5
  • Daniel McFadden
    • 6
  • Peter Moffatt
    • 7
  • Nathalie Picard
    • 1
  • Kenneth Train
    • 6
  • Peter Wakker
    • 8
  • Joan Walker
    • 9
  1. 1.Université de Cergy-PontoiseCergy-Pontoise CedexFrance
  2. 2.Massachusetts Institute of TechnologyCambridgeUSA
  3. 3.University of California at IrvineIrvineUSA
  4. 4.University of VirginiaCharlottesvilleUSA
  5. 5.Toulouse School of EconomicsToulouse Cedex 9France
  6. 6.University of CaliforniaBerkeleyUSA
  7. 7.University of East AngliaNorwichUK
  8. 8.Erasmus UniversityRotterdamThe Netherlands
  9. 9.Boston UniversityBostonUSA

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