Random utility models with ordered types and domains

Open Access       

Authors: Jose Apesteguia and Miguel Ángel Ballester

Journal of Economic Theory, Vol. 211, July, 2023

Random utility models in which heterogeneity of preferences is modeled by means of an ordered collection of utilities, or types, provide a powerful framework for understanding a variety of economic behaviors. This paper studies the micro-foundations of ordered random utility models with the objective of meeting empirical requirements. This is done by working with arbitrary collections of ordered menus of alternatives, and by making no parametric assumptions about the type distribution. The model is characterized by a simple monotonicity axiom. Goodness-of-fit measures are proposed, with proof provided of the strong consistency of extremum estimators defined upon them. A statistical test for the model is also provided.

This paper originally appeared as Barcelona School of Economics Working Paper 1176