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Attitudes toward uncertainty and randomization: an experimental study

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  • Adam Dominiak
  • Wendelin Schnedler

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Abstract

Individuals exhibit a randomization preference if they prefer random mixtures of two bets to each of the involved bets. Such preferences provide the foundation of various models of uncertainty aversion. However, it has to our knowledge not been empirically investigated whether uncertainty-averse decision makers indeed exhibit such preferences. Here, we examine the relationship experimentally. We find that uncertainty aversion is not positively associated with randomization preferences. Moreover, we observe choices that are not consistent with the prevailing theories of uncertainty aversion: a non-negligible number of uncertain-averse subjects seem to dislike randomization.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 48 (2011)
Issue (Month): 2 (October)
Pages: 289-312

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Handle: RePEc:spr:joecth:v:48:y:2011:i:2:p:289-312

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Related research

Keywords: Uncertainty aversion; Preference for randomization; Ambiguity; Non-expected utility models; D8; C91;

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References

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Citations

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Cited by:
  1. Michele Lombardi & Naoki Yoshihara, 2013. "A full characterization of nash implementation with strategy space reduction," Economic Theory, Springer, vol. 54(1), pages 131-151, September.
  2. Kota Saito, 2010. "Preference for Randomization - Ambiguity Aversion and Inequality Aversion," Levine's Working Paper Archive 661465000000000094, David K. Levine.
  3. David Kelsey & Sara le Roux, 2014. "An Experimental Study on the Effect of Ambiguity in a Coordination Game," Discussion Papers 1410, Exeter University, Department of Economics.
  4. King Li, 2011. "Preference towards control in risk taking: Control, no control, or randomize?," Journal of Risk and Uncertainty, Springer, vol. 43(1), pages 39-63, August.
  5. Kaito Sato, 2011. "Preference for Randomization and Ambiguity Aversion," Discussion Papers 1524, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Tomoki Fujii, 2012. "Dynamic Poverty Decomposition Analysis: An Application to the Philippines," Working Papers 34-2012, Singapore Management University, School of Economics.
  7. Brishti Guha, 2012. "Gambling on Genes: Ambiguity Aversion Explains Investment in Sisters’ Children," Working Papers 33-2012, Singapore Management University, School of Economics.
  8. Vassili Vergopoulos, 2011. "Dynamic consistency for non-expected utility preferences," Economic Theory, Springer, vol. 48(2), pages 493-518, October.
  9. Sujoy Mukerji & Robin Cubitt & Gijs van de Kuilen, 2014. "Discriminating between Models of Ambiguity Attitude: A Qualitative Test," Economics Series Working Papers 692, University of Oxford, Department of Economics.
  10. Oechssler, Jörg & Roomets, Alex, 2014. "A Test of Mechanical Ambiguity," Working Papers 0555, University of Heidelberg, Department of Economics.

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