Revealing a Preference for Mixtures: An Experimental Study of Risk

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Abstract: Using a revealed preference approach, we conduct an experiment where subjects make choices from linear convex budgets in the domain of risk. We find that many individuals prefer mixtures of lotteries in ways that systematically rule out expected utility behavior. We explore the extent to which an individual’s risk preferences are related to a preference for randomization by comparing choices from a convex choice task to the decisions made in a repeated discrete choice task. We find that risk preferences are positively correlated with behavior from repeated discrete choice tasks.