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Attitudes towards Uncertainty and Randomization: An Experimental Study

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  • Dominiak, Adam
  • Schnedler, Wendelin

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

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0494.

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Date of creation: 07 Jan 2010
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Handle: RePEc:awi:wpaper:0494

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Keywords: uncertainty aversion; randomization preference; ambiguity; Choquet expected utility model; maxmin expected utility model; experiment;

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Brishti Guha, 2012. "Gambling on Genes: Ambiguity Aversion Explains Investment in Sisters’ Children," Working Papers 33-2012, Singapore Management University, School 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. Tomoki Fujii, 2012. "Dynamic Poverty Decomposition Analysis: An Application to the Philippines," Working Papers 34-2012, Singapore Management University, School of Economics.
  6. Oechssler, Jörg & Roomets, Alex, 2014. "A Test of Mechanical Ambiguity," Working Papers 0555, University of Heidelberg, Department of Economics.
  7. Vassili Vergopoulos, 2011. "Dynamic consistency for non-expected utility preferences," Economic Theory, Springer, vol. 48(2), pages 493-518, October.
  8. Kota Saito, 2010. "Preference for Randomization - Ambiguity Aversion and Inequality Aversion," Levine's Working Paper Archive 661465000000000094, David K. Levine.
  9. Kaito Sato, 2011. "Preference for Randomization and Ambiguity Aversion," Discussion Papers 1524, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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