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Testing the ‘standard’ model of stochastic choice under risk

Butler, D.J., Isoni, A. and Loomes, G.C. (2012) Testing the ‘standard’ model of stochastic choice under risk. Journal of Risk and Uncertainty, 45 (3). pp. 191-213.

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Models of stochastic choice are intended to capture the substantial amount of noise observed in decisions under risk. We present an experimental test of one model, which many regard as the default—the Basic Fechner model. We consider one of the model’s key assumptions—that the noise around the subjective value of a risky option is independent of other features of the decision problem. We find that this assumption is systematically violated. However the main patterns in our data can be accommodated by a more recent variant of the Fechner model, or within the random preference framework.

Item Type: Journal Article
Murdoch Affiliation(s): Murdoch Business School
Publisher: Springer
Copyright: Springer
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