Why do people prefer randomisation? An experimental investigation

Yudistira Permana

Theory and Decision, 2020, vol. 88, issue 1, No 5, 73-96

Abstract: Abstract Increasingly, experimental economists, when eliciting risk preferences using a set of pairwise-choice problems (between two risky lotteries A and B), have given subjects a third choice (in addition to ‘I prefer A’ and ‘I prefer B’), namely that of saying, for example, ‘I am not sure about my preference’ or ‘I am not sure what to choose’. The implications for subjects of choosing this third option (which we call the ‘middle column’) vary across experiments depending upon the incentive structure. Some experiments provide no direct financial implications: what is ‘played out’ at the end of the experiment is not influenced by subjects choosing this middle column. In other experiments, if the middle column has been checked, then the payoff is determined by a randomisation of A and B. I report on an experiment, which adopts this latter incentive mechanism, and ask the question as to why people might choose this option, that is “why do they prefer randomisation?” I explore four distinct stories and compare their goodness-of-fit in explaining the data. My results show that the two of the four have the most empirical support. I conclude with a discussion of whether my results have anything to say about preference imprecision.

Keywords: Individual preferences; Randomisation; Risk; Laboratory experiment (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11238-019-09719-2

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