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A note on optimal experimentation under risk aversion

Abstract:

In a standard two-armed bandit setup, this paper shows – counterintuitively – that a more risk-averse decision maker might be more willing to take risky actions. The reason relates to the fact that pulling the risky arm in bandit models produces information on the environment – thereby reducing the risk that a decision maker will face in the future. This finding gives reason for caution when inferring risk preferences from observed actions: in a bandit setup, observing a greater appetite for ...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Publisher's version

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Publisher copy:
10.1016/j.jet.2018.11.006

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Institution:
University of Oxford
Division:
Social Sciences Division
Department:
Economics
Oxford college:
Nuffield College
Willems, T More by this author
Publisher:
Elsevier Publisher's website
Journal:
Journal of Economic Theory Journal website
Volume:
179
Pages:
476-487
Publication date:
2018-12-03
Acceptance date:
2018-11-26
DOI:
ISSN:
0022-0531
Pubs id:
pubs:949936
URN:
uri:36697508-1210-410a-a386-34b4dce3cfc0
UUID:
uuid:36697508-1210-410a-a386-34b4dce3cfc0
Local pid:
pubs:949936
Language:
English
Keywords:

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