Revealing Preferences Graphically:
An Old Method Gets a New Toolkit
DateMay 3rd, 2007
Read time 20 minutes
Because uncertainty is endemic in a wide variety of economic circumstances, models of decision making under uncertainty play a key role in every field of economics.
However, current methodologies for understanding decision making under uncertainty are insufficient. New experimental results and theoretical advances can provide much richer guidance for understanding the preferences underlying decisions under uncertainty and the choices that implement them. Developing such methods will have far-reaching implications in many areas of economic theory and policy.
In this paper, we illustrate how this experimental design enables us to thoroughly analyze behavior under uncertainty at the individual level. The analysis builds on revealed preference techniques to determine whether the choices of hypothetical subjects are consistent with utility maximization and to recover their underlying preferences.