Skewed Noise

David Dillenberger () and Uzi Segal
Additional contact information
David Dillenberger: University of Pennsylvania

No 843, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We study the attitude of decision makers to skewed noise. For a binary lottery that yields the better outcome with probability p, we identify noise around p with a compound lottery that induces a distribution over the exact value of the probability and has an average value p. We propose and characterize a new notion of skewed distributions, and use a recursive non-expected utility model to provide conditions under which rejection of symmetric noise implies rejection of skewed to the left noise as well. We demonstrate that rejection of these types of noises does not preclude acceptance of some skewed to the right noise, in agreement with recent experimental evidence. We apply the model to study random allocation problems (one-sided matching) and show that it can predict systematic preferences for one allocation mechanism over the other, even if the two agree on the overall probability distribution over assignments. The model can also be used to address the phenomenon of ambiguity seeking in the context of decision making under uncertainty.

Keywords: Skewed distributions; recursive non-expected utility; ambiguity seeking; one-sided matching (search for similar items in EconPapers)
JEL-codes: C78 D81 (search for similar items in EconPapers)
Date: 2013-11-25, Revised 2016-07-26
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published, Journal of Economic Theory, 169 (2017), 344-364.

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp843.pdf main text (application/pdf)

Related works:
Journal Article: Skewed noise (2017)
Working Paper: Skewed Noise (2015)
Working Paper: Skewed Noise (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:843

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().