Stochastic Choice and the Allocation of Cognitive Effort

  title={Stochastic Choice and the Allocation of Cognitive Effort},
  author={Peter G. Moffatt},
  journal={Experimental Economics},
  • P. Moffatt
  • Published 1 December 2005
  • Economics, Psychology
  • Experimental Economics
Data from a risky choice experiment are used to estimate a fully parametric stochastic model of risky choice. As is usual with such analyses, Expected Utility Theory is rejected in favour of a form of Rank Dependent Theory. Then an estimate of the risk aversion parameter is deduced for each subject, and this is used to construct a measure of the “closeness to indifference'' of each subject in each choice problem. This measure is then used as an explanatory variable in a random effects model of… 

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IN this article an attempt will be made to demonstrate, first, that the usual indifference-curve analysis of consumer's demand is logically unsatisfactory; secondly, that a theory of consumer's