REFLECTION EFFECT IN STOCHASTIC SPECIFICATION (STRONG, CPT) OF PAIRWISE CHOICE UNDER RISK
ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH(2013)
Abstract
The paper presents the results of two stochastic specifications of experimental data obtained in the pairwise choice experiment. In the estimated specifications the strong utility stochastic model was used. A comparative analysis of the results of stochastic specifications based on two decision theories: Rank-Dependent Expected Utility and Cumulative Prospect Theory was performed, which allowed to draw two conclusions. Specification based on CPT structure is more effective in modelling choices over lotteries that contain both gains and losses. However, the reflection effect is observed only in the results of estimation based on RDEU structure. In the estimations with CPT structure the reflection effect did not occur.
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Key words
choice under risk,Cumulative Prospect Theory,stochastic specification,strong utility model,pairwise choice experiment
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