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Contingent preference for flexibility: eliciting beliefs from behavior

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  • Sadowski, Philipp

    ()
    (Department of Economics, Duke University)

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    Abstract

    Following Kreps (1979), I consider a decision maker who is uncertain about her future taste. This uncertainty leaves the decision maker with a preference for flexibility: When choosing among menus containing alternatives for future choice, she weakly prefers menus with additional alternatives. Standard representations accommodating this choice pattern cannot distinguish tastes (indexed by a subjective state space) and beliefs (a probability measure over the subjective states) as different concepts. I allow choice between menus to depend on objective states. My axioms provide a representation that uniquely identifies beliefs, provided objective states are sufficiently relevant for choice. I suggest this result as a choice theoretic foundation for the assumption, commonly made in the (incomplete) contracting literature, that contracting parties who know each others' ranking of contracts, also share beliefs about each others' future tastes in the face of unforeseen contingencies.

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    Bibliographic Info

    Article provided by Econometric Society in its journal Theoretical Economics.

    Volume (Year): 8 (2013)
    Issue (Month): 2 (May)
    Pages:

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    Handle: RePEc:the:publsh:884

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    Web page: http://econtheory.org

    Related research

    Keywords: Preference for flexibility; unique beliefs; unforeseen contingencies; incomplete contracts;

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    References

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    1. Larry G. Epstein, 2006. "An Axiomatic Model of Non-Bayesian Updating," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 413-436.
    2. Grant, Simon & Karni, Edi, 2003. "Why Does It Matter That Beliefs and Valuations Be Correctly Represented?," Working Papers 2003-02, Rice University, Department of Economics.
    3. David S. Ahn & Todd Sarver, 2013. "Preference for Flexibility and Random Choice," Econometrica, Econometric Society, vol. 81(1), pages 341-361, 01.
    4. Higashi, Youichiro & Hyogo, Kazuya & Takeoka, Norio, 2009. "Subjective random discounting and intertemporal choice," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1015-1053, May.
    5. Kopylov, Igor, 2009. "Finite additive utility representations for preferences over menus," Journal of Economic Theory, Elsevier, vol. 144(1), pages 354-374, January.
    6. Ozdenoren, Emre, 2002. "Completing the State Space with Subjective States," Journal of Economic Theory, Elsevier, vol. 105(2), pages 531-539, August.
    7. Eddie Dekel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2007. "Representing Preferences with a Unique Subjective State Space: A Corrigendum -super-1," Econometrica, Econometric Society, vol. 75(2), pages 591-600, 03.
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    Cited by:
    1. Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.

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