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

Eric Danan

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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.

Keywords: Randomization; selection; money pump; indifference; noncomparability (search for similar items in EconPapers)
Date: 2010
Note: View the original document on HAL open archive server: https://hal.science/hal-00872249
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Citations: View citations in EconPapers (16)

Published in Management Science, 2010, 56 (3), pp.503-518. ⟨10.1287/mnsc.1090.1116⟩

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Journal Article: Randomization vs. Selection: How to Choose in the Absence of Preference? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00872249

DOI: 10.1287/mnsc.1090.1116

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