Attitudes toward uncertainty and randomization: an experimental study

Abstract

Subjects are randomization-loving if they prefer random mixtures of two bets to each of the involved bets. Various approaches appeal to such preferences in order to explain uncertainty aversion. We examine the relationship between uncertainty and randomization attitude experimentally. Our data suggest that they are not negatively associated: most uncertainty-averse subjects are randomization-neutral rather than loving. Surprisingly, a non-negligible number of uncertainty-averse subjects even seems to dislike randomization.

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Correspondence to Wendelin Schnedler.

Additional information

The paper benefited from the contributions of participants of the 2009 Asia Pacific Meeting of the Economic Science Association, the 2009 Maastricht Behavioral and Experimental Economics Symposium, the 2010 Workshop on Risk, Ambiguity, and Decisions in honor of Daniel Ellsberg, and at a seminar in 2010 at the Groupe d’Analyse et de Théorie Economique (GATE) in Lyon.

The authors wish to thank Jürgen Eichberger, Simon Grant, David Kelsey, Jean-Philippe Lefort, Jörg Oechssler, Arno Riedl, Jacob Sagi, and David Schmeidler for their valuable comments. Financial support from the Deutsche Forschungsgemeinschaft (SFB 504) is gratefully acknowledged.

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Dominiak, A., Schnedler, W. Attitudes toward uncertainty and randomization: an experimental study. Econ Theory 48, 289–312 (2011). https://doi.org/10.1007/s00199-011-0649-z

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Keywords

  • Uncertainty aversion
  • Preference for randomization
  • Ambiguity
  • Non-expected utility models

JEL Classification

  • D8
  • C91