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, ignores stochastic dominance. A modification of this method is proposed to account for...

Elicitation methods in decision-making under risk allow us to infer the utilities of outcomes as well as the probability weights from the observed preferences of an individual. An optimally efficient elicitation method is proposed, which takes the inevitable distortion of preferences by random...

In binary choice between discrete outcome lotteries, an individual may prefer lottery L <Subscript>1</Subscript> to lottery L <Subscript>2</Subscript> when the probability that L <Subscript>1</Subscript> delivers a better outcome than L <Subscript>2</Subscript> is higher than the probability that L <Subscript>2</Subscript> delivers a better outcome than L <Subscript>1</Subscript>. Such a preference can be rationalized by three...</subscript></subscript></subscript></subscript></subscript></subscript>

This paper proposes a new decision theory of how individuals make random errors when they compute the expected utility of risky lotteries. When distorted by errors, the expected utility of a lottery never exceeds (falls below) the utility of the highest (lowest) outcome. This assumption implies...