static and Dynamic Decision Making under Uncertainty:
Theory and Applications
Principal Investigator: Simone Cerreia-Vioglio
The goal of this project is to develop a model of random choice where the randomization is due not to mistakes or changes in utility but because sub ects are choosing to randomize. This is in line with the interpretation of random choice suggested in Machina (1985). We proceed axiomatically by positing restrictions on behavior and derive a model that is equivalent to these restrictions. In our model subjects choose to randomize following non-Expected Utility preferences as in the Cautious Expected Utility model of Cerreia-Vioglio Dillenberger Ortoleva (2014). Intuitively subjects are unsure about how to evaluate each lottery and are pessimistic in evaluating them; they prefer to 'hedge' between available options and thus choose to randomize.
IGIER - Università Bocconi