Microeconomic Theory Seminar
Speaker: Severine Toussaert (Oxford)
Title: Stochastic Dominance and Demand for Surprise
Format: Hybrid
Homepage: https://severinetoussaert.com/
Organiser: Changhwa
Abstract: Decision theorists usually take a normative view on stochastic dominance: a decision maker who chooses a dominated lottery must be making a mistake. This paper provides evidence that stochastic dominance violations may naturally occur in situations where anticipatory utility is high, such as going on a holiday trip. In such a situation, the decision maker may trade the certainty of going to his favorite destination for the excitement of not knowing where he will go. To document this phenomenon, I conduct an experiment in which participants make a series of binary choices between a sure destination and a "surprise lottery'' over holiday trips, with the lottery outcome revealed close to the date of travel. I vary lottery characteristics to understand when violations are most likely to occur and analyze their properties. I discuss the implications for the design of "surprise goods'' and the modelling of anticipatory utility.