Deliberately Stochastic

Simone Cerreia-Vioglio, David Dillenberger (), Pietro Ortoleva and Gil Riella
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David Dillenberger: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We study stochastic choice as the outcome of deliberate randomization. After first deriving a general representation of a stochastic choice function with such property, we proceed to characterize a model in which the agent has preferences over lotteries that belong to the Cautious Expected Utility class (Cerreia Vioglio et al., 2015), and the stochastic choice is the optimal mix among available options. This model links stochasticity of choice and the phenomenon of Certainty Bias, with both behaviors stemming from the same source: multiple utilities and caution. We show that this model is behaviorally distinct from models of Random Utility, as it typically violates the property of Regularity, shared by all of them.

Keywords: Stochastic Choice; Random Utility; Hedging; Cautious Expected Utility; Convex Preferences; Regularity (search for similar items in EconPapers)
JEL-codes: D80 D81 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2012-02-01, Revised 2017-05-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Deliberately Stochastic (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:17-013

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