Preferences for Flexibility and Randomization under Uncertainty

Author:

Saito Kota1

Affiliation:

1. Division of the Humanities and Social Sciences, California Institute of Technology, MC 228-77, 1200 E. California Blvd., Pasadena, CA 91125 (e-mail: )

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)

Publisher

American Economic Association

Subject

Economics and Econometrics

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