American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Preferences for Flexibility and Randomization under Uncertainty
American Economic Review
vol. 105,
no. 3, March 2015
(pp. 1246–71)
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. (JEL D11, D81)Citation
Saito, Kota. 2015. "Preferences for Flexibility and Randomization under Uncertainty." American Economic Review, 105 (3): 1246–71. DOI: 10.1257/aer.20131030Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D81 Criteria for Decision-Making under Risk and Uncertainty