Blame It on the Coin Flip: Preferences for Randomization and Regret

Abstract

A growing literature documents that decision makers often delegate choices to random devices (e.g., coin flips), yet the underlying motivation remains unclear. We propose and test a novel model in which preferences for randomization arise from a desire to hedge against regret. Consistent with the model’s predictions, participants randomize more when payoffs are more negatively correlated, and less when feedback on the forgone outcome is withheld.