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A note on optimal experimentation under risk aversion
- 1.0517854 - NHU-C 2020 RIV US eng J - Journal Article
Keller, G. - Novák, Vladimír - Willems, T.
A note on optimal experimentation under risk aversion.
Journal of Economic Theory. Roč. 179, January (2019), s. 476-487. ISSN 0022-0531. E-ISSN 1095-7235
Grant - others:UK(CZ) GAUK 197216
Institutional support: Progres-Q24
Keywords : experimentation * learning * risk aversion
OECD category: Economic Theory
Impact factor: 1.124, year: 2019
Method of publishing: Open access
https://doi.org/10.1016/j.jet.2018.11.006
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 risky actions can actually be indicative of more risk aversion, not less.
Permanent Link: http://hdl.handle.net/11104/0303104
Number of the records: 1