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Journal of Risk and Uncertainty

, Volume 20, Issue 1, pp 67–88 | Cite as

Generalized Expected Utility, Heteroscedastic Error, and Path Dependence in Risky Choice

  • David Buschena
  • David Zilberman
Article

Abstract

We evaluate the fit of several generalized expected utility models under homoscedasticity and three different heteroscedastic error structures for the data set first reported in Hey and Orme (1994). Standard chi-squared tests are used for nested tests, and both the Akaike (1973) information criterion and its consistent version (Hurvich and Tsai, 1989) are used for non-nested ranking of these models. A testing framework is developed that explicitly accounts for the path-dependent nature of the model selection problem. Not only does the selection of preference models depend on the error structure assumed, but the reverse is also true: the selection of the error structure depends on the preference structure assumed.

generalized-expected utility heteroscedastic error path-dependence 

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Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • David Buschena
    • 1
  • David Zilberman
    • 2
  1. 1.Department of Agricultural Economics and EconomicsMontana State UniversityBozeman
  2. 2.Department of Agricultural and Resource Economics and PolicyUniversity of CaliforniaBerkeley

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