Stochastic Choice and Preferences for Randomization

Abstract

We investigate the origin of stochastic choice and differentiate between three classes of models that account for it: Random Utility, Bounded Rationality, and Deliberate Randomization. We conduct an experiment in which subjects face the same questions repeated multiple times, but we consider repetitions of two kinds: 1) following the literature, with repetitions distant from each other; 2) in a novel treatment, with repetitions in a row, telling subjects that questions will be repeated. We find that a large majority of subjects exhibit stochastic choice in both cases. These results support the Deliberate Randomization class of models of stochastic choice.

Keywords: Stochastic Choice, Random Utility, Mistakes, Hedging

JEL Classification: C91, D11, D81.