TY - JOUR
T1 - Reconciling Introspective Utility With Revealed Preference: Experimental Arguments Based on Prospect Theory
AU - Mohammed, A.
AU - Barrios, C.
AU - Wakker, P.P.
PY - 2007/1/1
Y1 - 2007/1/1
N2 - In an experiment, choice-based (revealed-preference) utility of money is derived from choices under risk, and choiceless (non-revealed-preference) utility from introspective strength-of-preference judgments. The well-known inconsistencies of risky utility under expected utility are resolved under prospect theory, yielding one consistent cardinal utility index for risky choice. Remarkably, however, this cardinal index also agrees well with the choiceless utilities, suggesting a relation between a choice-based and a choiceless concept. Such a relation implies that introspective judgments can provide useful data for economics, and can reinforce the revealed-preference paradigm. This finding sheds new light on the classical debate on ordinal versus cardinal utility.
AB - In an experiment, choice-based (revealed-preference) utility of money is derived from choices under risk, and choiceless (non-revealed-preference) utility from introspective strength-of-preference judgments. The well-known inconsistencies of risky utility under expected utility are resolved under prospect theory, yielding one consistent cardinal utility index for risky choice. Remarkably, however, this cardinal index also agrees well with the choiceless utilities, suggesting a relation between a choice-based and a choiceless concept. Such a relation implies that introspective judgments can provide useful data for economics, and can reinforce the revealed-preference paradigm. This finding sheds new light on the classical debate on ordinal versus cardinal utility.
U2 - 10.1016/j.jeconom.2006.05.025
DO - 10.1016/j.jeconom.2006.05.025
M3 - Article
SN - 0304-4076
VL - 138
SP - 356
EP - 378
JO - Journal of Econometrics
JF - Journal of Econometrics
ER -