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Uncertainty Aversion and Preference for Randomization

Wendelin Schnedler and Adam Dominiak ()
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Adam Dominiak: Alfred-Weber-Institut, Postal: Grabengasse 14, 69117 Heidelberg

No 08-39, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

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.

Pages: 27 pages
Date: 2008-12-24
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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