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Preference for Randomization: Empirical and Experimental Evidence

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  • Nadja Dwenger
  • Dorothea Kübler
  • Georg Weizsäcker

Abstract

We investigate violations of consequentialism in the form of the stochastic dominance property. The property is shared by many theories of choice and implies that the decision-maker prefers receiving the best outcome for sure over all lotteries that involve multiple outcomes. We run experiments to demonstrate that dominated randomization can be attractive. In treatments where decision-makers are asked to submit multiple decisions without knowing which one is relevant, many participants submit contradictory sets of decisions and thereby induce a dominated lottery between outcomes. Explicit choice of non-consequentialist randomization is observed in a separate treatment. A possible reason for the e ect is the desire to avoid having to make the decision. A large data set on (high-stake) university applications in Germany shows patterns that are consistent with a preference for randomization.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2013-004.

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Length: 36 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2013-004

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Keywords: Stochastic dominance violations; individual decision making; university choice; matching;

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References

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  1. Michal Krawczyk & Fabrice Le Lec, 2010. "‘Give me a chance!’ An experiment in social decision under risk," Experimental Economics, Springer, vol. 13(4), pages 500-511, December.
  2. Sebastian Braun & Nadja Dwenger & Dorothea Kübler, 2007. "Telling the Truth May Not Pay Off: An Empirical Study of Centralised University Admissions in Germany," SFB 649 Discussion Papers SFB649DP2007-070, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Gary E. Bolton & Jordi Brandts & Axel Ockenfels, 2000. "Fair Procedures. Evidence from Games Involving Lotteries," UFAE and IAE Working Papers 483.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Sebastian Braun & Nadja Dwenger & Dorothea Kübler, 2007. "Telling the Truth May Not Pay Off," Discussion Papers of DIW Berlin 759, DIW Berlin, German Institute for Economic Research.
  5. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
  6. Rubinstein, Ariel, 2002. "Irrational diversification in multiple decision problems," European Economic Review, Elsevier, vol. 46(8), pages 1369-1378, September.
  7. Sebastian Braun & Nadja Dwenger, 2008. "Success in the University Admission Process in Germany: Regional Provenance Matters," Discussion Papers of DIW Berlin 789, DIW Berlin, German Institute for Economic Research.
  8. Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
  9. Alvin E. Roth, 2007. "Deferred Acceptance Algorithms: History, Theory, Practice, and Open Questions," NBER Working Papers 13225, National Bureau of Economic Research, Inc.
  10. Alvin E. Roth & Uriel G. Rothblum, 1999. "Truncation Strategies in Matching Markets--In Search of Advice for Participants," Econometrica, Econometric Society, vol. 67(1), pages 21-44, January.
  11. Elliott Peranson & Alvin E. Roth, 1999. "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," American Economic Review, American Economic Association, vol. 89(4), pages 748-780, September.
  12. Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-68, December.
  13. Berg, Joyce E. & Dickhaut, John W. & Rietz, Thomas A., 2010. "Preference reversals: The impact of truth-revealing monetary incentives," Games and Economic Behavior, Elsevier, vol. 68(2), pages 443-468, March.
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Cited by:
  1. Kaito Sato, 2011. "Preference for Randomization and Ambiguity Aversion," Discussion Papers 1524, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Friedrich Poeschel, 2013. "Assortative matching through signals," 2013 Papers ppo178, Job Market Papers.

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