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Empirical research often requires a method how to convert a deterministic economic theory into an econometric model. A popular method is to add a random error term on the utility scale. This method, however, violates stochastic dominance. A modification of this method is proposed to avoid...
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This paper presents a new decision theory for modelling choice under risk. The new theory is a two …-parameter generalization of expected utility theory. The proposed theory assumes that a decision maker: 1) behaves as if maximizing expected … thereof (in certain types of decision problems); the Allais paradox in classical common consequence problems and the reverse …
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