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Testing theories of financial decision making

Chambers, Christopher P. and Echenique, Federico and Saito, Kota (2016) Testing theories of financial decision making. Proceedings of the National Academy of Sciences of the United States of America, 113 (15). pp. 4003-4008. ISSN 0027-8424. PMCID PMC4839416. doi:10.1073/pnas.1517760113.

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We describe the observable content of some of the most widely used models of decision under uncertainty: models of translation invariant preferences. In particular, we characterize the models of variational, maxmin, constant absolute risk aversion, and constant relative risk aversion utilities. In each case we present a revealed preference axiom that is satisfied by a dataset if and only if the dataset is consistent with the corresponding utility representation. We test our axioms using data from an experiment on financial decisions.

Item Type:Article
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URLURL TypeDescription DOIArticle ItemWorking Paper CentralArticle
Chambers, Christopher P.0000-0001-8253-0328
Echenique, Federico0000-0002-1567-6770
Saito, Kota0000-0003-1189-8912
Additional Information:© 2016 National Academy of Sciences. Edited by Matthew O. Jackson, Stanford University, Stanford, CA, and approved February 22, 2016 (received for review September 8, 2015). Published online before print March 28, 2016. We thank Simon Grant and Massimo Marinacci, who posed questions to us that led to some of the results in this paper. We also thank John Hey and Noemi Pace for allowing us to use their data and Taisuke Imai for carrying out our test. This work was supported by National Science Foundation Grant SES-1426867 (to C.P.C.). Author contributions: C.P.C., F.E., and K.S. designed research, performed research, analyzed data, and wrote the paper. The authors declare no conflict of interest. This article is a PNAS Direct Submission.
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Subject Keywords:revealed preference; translation invariance; homotheticity; uncertainty
Issue or Number:15
PubMed Central ID:PMC4839416
Record Number:CaltechAUTHORS:20160329-072655949
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Official Citation:Christopher P. Chambers, Federico Echenique, and Kota Saito Testing theories of financial decision making PNAS 2016 113 (15) 4003-4008; published ahead of print March 28, 2016, doi:10.1073/pnas.1517760113
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:65722
Deposited By: Tony Diaz
Deposited On:29 Mar 2016 15:48
Last Modified:10 Nov 2021 23:49

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