Measuring Conformance with a CRRA Utility Function

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• Given distribution, assign wealths to states
  • based on least-cost

• Regress ln(w) on ln(P)
  • since P values are given, and participant chooses w values
  • result is the best-fit CRRA utility function

• Slope coefficient measures risk tolerance (rt)

• R-squared (r2) measures degree of conformance to CRRA utility function
  • statistical, not necessarily economic