Seminar

Flipping a coin: Theory and evidence

Georg Weizsacker (University College London)

May 14, 2013, 11:00–12:30

Toulouse

Room MS 001

Economic Theory Seminar

Abstract

Flipping a coin instead of making a decision is a violation of most theories of choice. Expected utility and most of its relatives obey stochastic dominance, implying that the decision-maker prefers receiving the best outcome for sure over all lotteries that involve multiple outcomes. This prediction runs counter to the possible desire to avoid having to make a decision. We investigate theoretically and empirically the possibility that the decision-maker prefers avoiding the responsibility that a decision entails and rather delegates the decision to an external device, e.g., a coin flip. 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 stochastically dominated randomization emerges in a separate treatment. A large data set on (high-stake) university applications in Germany shows patterns that are consistent with this preference for randomization.