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Attitudes toward uncertainty and randomization: an experimental study

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  • Adam Dominiak
  • Wendelin Schnedler

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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  • Adam Dominiak & Wendelin Schnedler, 2011. "Attitudes toward uncertainty and randomization: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 289-312, October.
    • Handle: RePEc:spr:joecth:v:48:y:2011:i:2:p:289-312
    DOI: 10.1007/s00199-011-0649-z
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    More about this item

    Keywords

    Uncertainty aversion; Preference for randomization; Ambiguity; Non-expected utility models; D8; C91;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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