ICES Seminar in Experimental Economics and Game Theory
Dynamic and Stochastic Rational Behavior
Friday, April 21, 2023 12:00 PM to 1:00 PM EDT
Vernon Smith Hall (formerly Metropolitan Building), 5183
The ICES Seminar in Experimental Economics and Game Theory of the Spring 2023 semester will feature:
University of Western Ontario
Dynamic and Stochastic Rational Behavior
Abstract
We analyze choice behavior using Dynamic Random Utility Model (DRUM). Under DRUM, each consumer or decision-maker draws a utility function from a stochastic utility process in each period and maximizes it subject to a menu. DRUM allows for unrestricted time correlation and cross-section heterogeneity in preferences. We fully characterize DRUM when panel data on choices and menus are available. Our results cover consumer demand with a continuum of choices and finite discrete choice setups. DRUM is linked to a finite mixture of deterministic behaviors that can be represented as the Kronecker product of static rationalizable behaviors. We exploit a generalization of the Weyl-Minkowski theorem that uses this link and enables conversion of the characterizations of the static Random Utility Model (RUM) of McFadden-Richter (1990) to its dynamic form. DRUM is more flexible than Afriat's (1967) framework and more informative than RUM. In an application, we find that static utility maximization fails to explain population behavior, but DRUM can explain it.
For more information about the Seminar Series, please visit the Seminar Schedule homepage.
