American Economic Review Vol. 105 No. 3 2015
Preferences for Flexibility and Randomization under Uncertainty
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.
- DOI
- 10.1257/aer.20131030
- Volume
- 105
- Issue
- 3
- Pages
- 1246-1271
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref