Speaker: Matthew Ryan
Affiliation: Department of Economics, UoA
Title: Binary Stochastic Choice under Risk or Uncertainty
Date: Tuesday, 3 Jun 2014
Time: 5:00 pm
Location: Room 412, Science Centre (303)

Economists usually model choice as deterministic, via preference relations, though occasionally — and usually for econometric convenience — choice is allowed to be stochastic. Psychologists, on the other hand, typically model choice behaviour as intrinsically stochastic. In psychophysics, for example, it is common to model the probability of choosing one option over another (in a binary choice problem) as an increasing function of the difference in “utility” stimuli associated with the options. This is called a “strong utility representation” (SUP) for the binary choice probabilities.

These models of binary stochastic choice generate numerous interesting mathematical problems. This talk will introduce a small sample. The main focus will be on binary choice problems in which each option is a “lottery”, with risky or uncertain value. Given a specification of choice probabilities for all possible pairs of lotteries, under what conditions (on these probabilities) does there exist a SUP? What if we additionally require that the utility scale exhibit particular properties, such as linearity?