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Deliberately Stochastic

Author

Listed:
  • Simone Cerreia-Vioglio

    (Department of Economics, Bocconi University)

  • David Dillenberger

    (Department of Economics, University of Pennsylvania)

  • Pietro Ortoleva

    (Department of Economics, Princeton University)

  • Gil Riella

    (Department of Economics, Fundação Getulio Vargas - EBAPE)

Abstract

We study stochastic choice as the outcome of deliberate randomization. After first deriving a general representation of a stochastic choice function with such property, we proceed to characterize a model in which the agent has preferences over lotteries that belong to the Cautious Expected Utility class (Cerreia Vioglio et al., 2015), and the stochastic choice is the optimal mix among available options. This model links stochasticity of choice and the phenomenon of Certainty Bias, with both behaviors stemming from the same source: multiple utilities and caution. We show that this model is behaviorally distinct from models of Random Utility, as it typically violates the property of Regularity, shared by all of them.

Suggested Citation

  • Simone Cerreia-Vioglio & David Dillenberger & Pietro Ortoleva & Gil Riella, 2012. "Deliberately Stochastic," PIER Working Paper Archive 17-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 25 May 2017.
    • Handle: RePEc:pen:papers:17-013
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stochastic Choice; Random Utility; Hedging; Cautious Expected Utility; Convex Preferences; Regularity;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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