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Uncertainty Aversion and Preference for Randomization

Author

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  • Schnedler, Wendelin

    (Department of Economics, University of Heidelberg)

  • Dominiak, Adam

    (Alfred-Weber-Institut)

Abstract

Individuals exhibit preferences for randomization if they prefer random mixtures of two bets to each of the involved bets. Such preferences underpin 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 nd that uncertainty aversion is not positively associated with preferences for randomization. Moreover, we observe a puzzling behavior that is not predicted: a non-negligible number of uncertain-averse subjects seem to dislike randomization.

Suggested Citation

  • Schnedler, Wendelin & Dominiak, Adam, 2008. "Uncertainty Aversion and Preference for Randomization," Sonderforschungsbereich 504 Publications 08-39, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:08-39
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    3. Oechssler, Jörg & Rau, Hannes & Roomets, Alex, 2016. "Hedging and Ambiguity," Working Papers 0621, University of Heidelberg, Department of Economics.

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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