Empirical research often requires a method how to convert a deterministic economic theory into an econometric model. A popular method is to add a random error term on the utility scale. This method, however, ignores stochastic dominance. A modification of this method is proposed to account for...

This paper proposes a new decision theory of how individuals make random errors when they compute the expected utility of risky lotteries. When distorted by errors, the expected utility of a lottery never exceeds (falls below) the utility of the highest (lowest) outcome. This assumption implies...