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Randomization vs. selection: How to choose in the absence of preference?

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Author Info

  • Eric Danan

    ()
    (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)

Abstract

Decision makers sometimes have to choose between alternative options about which they have no preference: either they judge the options equally valuable (indifference) or they have no judgment about their relative value (noncomparability). Choosing randomly is generally considered a natural way to deal with such situations. This paper shows, however, that systematic randomization between noncomparable options may lead to a chain of decisions resulting in monetary losses (a money pump). Furthermore, these losses can be avoided by deliberately selecting one of the noncomparable options instead of randomizing. Thus, randomization among noncomparable options is costly relative to deliberate selection. On the other hand, randomization among indifferent options is costless relative to deliberate selection.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00872249.

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Date of creation: 2010
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Publication status: Published, Management Science, 2010, 56, 3, 503-518
Handle: RePEc:hal:journl:hal-00872249

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Related research

Keywords: Randomization; selection; money pump; indifference; noncomparability;

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References

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  11. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(1), pages 73-105, February.
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  14. Fabio Maccheroni, 2000. "Yaari dual theory without the completeness axiom," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 30-2001, ICER - International Centre for Economic Research, revised Oct 2001.
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Cited by:
  1. Gerasimou, Georgios, 2012. "Asymmetric Dominance, Deferral and Status Quo Bias in a Theory of Choice with Incomplete Preferences," MPRA Paper 40097, University Library of Munich, Germany.
  2. Chen Li & Zhihua Li & Peter Wakker, 2014. "If nudge cannot be applied: a litmus test of the readers’ stance on paternalism," Theory and Decision, Springer, Springer, vol. 76(3), pages 297-315, March.
  3. Evren, Özgür & Ok, Efe A., 2011. "On the multi-utility representation of preference relations," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 554-563.
  4. Rohan Dutta & Sean Horan, 2013. "Inferring Rationales from Choice : Identification for Rational Shortlist Methods," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 09-2013, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  5. Özgür Evren, 2012. "Scalarization Methods and Expected Multi-Utility Representations," Working Papers w0174, Center for Economic and Financial Research (CEFIR).
  6. Gerasimou, Georgios, 2010. "Rational indecisive choice," MPRA Paper 25481, University Library of Munich, Germany.
  7. Nascimento, Leandro, 2012. "The ex-ante aggregation of opinions under uncertainty," Theoretical Economics, Econometric Society, Econometric Society, vol. 7(3), September.

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