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Preference for Randomization: Empirical and Experimental Evidence

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http://pubman.mpdl.mpg.de/cone/persons/resource/persons51179

Dwenger,  Nadja
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Dwenger, N., Kübler, D., & Weizsäcker, G. (2012). Preference for Randomization: Empirical and Experimental Evidence. Working Paper of the Max Planck Institute for Tax Law and Public Finance, No. 2012-14.


Cite as: http://hdl.handle.net/11858/00-001M-0000-000E-7FCA-5
Abstract
We investigate violations of consequentialism in the form of the stochastic dominance property. The property is shared by many theories of choice and implies that the decision-maker prefers receiving the best outcome for sure over all lotteries that involve multiple outcomes. We run experiments to demonstrate that dominated randomization can be attractive. In treatments where decision-makers are asked to submit multiple decisions without knowing which one is relevant, many participants submit contradictory sets of decisions and thereby induce a dominated lottery between outcomes. Explicit choice of non-consequentialist randomization is observed in a separate treatment. A possible reason for the effect is the desire to avoid having to make the decision. A large data set on (high-stake) university applications in Germany shows patterns that are consistent with a preference for randomization.