Abstract
Increasingly, experimental economists, when eliciting risk preferences using a set of pairwise-choice problems (between two risky lotteries A and B), have given subjects a third choice (in addition to ‘I prefer A’ and ‘I prefer B’), namely that of saying, for example, ‘I am not sure about my preference’ or ‘I am not sure what to choose’. The implications for subjects of choosing this third option (which we call the ‘middle column’) vary across experiments depending upon the incentive structure. Some experiments provide no direct financial implications: what is ‘played out’ at the end of the experiment is not influenced by subjects choosing this middle column. In other experiments, if the middle column has been checked, then the payoff is determined by a randomisation of A and B. I report on an experiment, which adopts this latter incentive mechanism, and ask the question as to why people might choose this option, that is “why do they prefer randomisation?” I explore four distinct stories and compare their goodness-of-fit in explaining the data. My results show that the two of the four have the most empirical support. I conclude with a discussion of whether my results have anything to say about preference imprecision.
Highlights
Experimental economists, when eliciting risk preferences using a set of pairwise-choice problems, have given subjects a third choice, namely, for example, that of saying ‘I am not sure about my preference’ or ‘I am not sure what to choose’
The implications for subjects of choosing this middle column vary across experiments—it depends on the incentive mechanism
For example, Cettolin and Riedl (2019), if the middle column has been checked, the payoff is determined by randomisation of Option A and Option B
Summary
Experimental economists, when eliciting risk preferences using a set of pairwise-choice problems (between two risky lotteries A and B), have given subjects a third choice (in addition to ‘I prefer A’ and ‘I prefer B’), namely, for example, that of saying ‘I am not sure about my preference’ or ‘I am not sure what to choose’. For example, Cettolin and Riedl (2019), if the middle column has been checked, the payoff is determined by randomisation of Option A and Option B (a mixture of A and B) Recent literature adopts this procedure to allow the investigation of a preference for randomisation (Dwenger et al 2018) and stochastic choice (Agranov and Ortoleva 2017). The DM is assumed to be able to calculate the subjective utility of an alternative but that does not guarantee him or her choosing the optimal choice This stochastic specification follows the tremble specification as in Harless and Camerer’s (1994), Moffatt, and Peters (2001). This paper is organised as follows: the section discusses the experimental design; Sect. 3 describes the four stories in detail; Sect. 4 presents the empirical results and analyses; Sect. 5 discusses and concludes
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