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Published March 2015 | Published + Supplemental Material
Journal Article Open

Preferences for Flexibility and Randomization under Uncertainty

Saito, Kota ORCID icon

Abstract

An uncertainty-averse agent prefers betting on an event whose probability is known, to betting on an event whose probability is unknown. Such an agent may randomize his choices to eliminate the effects of uncertainty. For what sort of preferences does a randomization eliminate the effects of uncertainty? To answer this question, we investigate an agent's preferences over sets of acts. We axiomatize a utility function, through which we can identify the agent's subjective belief that a randomization eliminates the effects of uncertainty.

Additional Information

© 2015 American Economic Association. I am indebted to my adviser, Eddie Dekel, for continuous guidance, support, and encouragement. I would like to thank Federico Echenique for continuous discussion that has led to improvement of the paper. I am grateful to Larry Epstein, Jeff Ely, Faruk Gul, Edi Karni, Michihiro Kandori, Pietro Ortoleva, Fabio Maccheroni, Massimo Marinacci, Wolfgang Pesendorfer, Kyoungwon Seo, Chris Shannon, Marciano Siniscalchi, Peter Wakker, Leeat Yariv, and seminar participants at the Michigan University, Econometric Society Meeting 2012 at Northwestern University, the Decision Theory Workshop 2012 at the New School of Economics, and RUD 2013 (Paris) for discussions which have led to improvement of the paper. Finally, I appreciate three anonymous referees for their helpful comments. The author declares that I have no relevant or material financial interests that relate to the research described in the paper.

Attached Files

Published - aer.20131030.pdf

Supplemental Material - 20131030_app.pdf

Supplemental Material - 20131030_ds.zip

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