Flexibility of Choice versus Reduction of Ambiguity

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Flexibility of Choice versus Reduction of Ambiguity

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Guerdjikova, Ani (Cornell U)
Zimper, Alexander (U of Cape Town)

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Alexander Zimper

Abstract

This paper explores the problem of a social planner willing to improve the welfare of individuals who are unable to compare all available alternatives. The optimal decision trades off the individuals' desire for flexibility versus their aversion towards ambiguous choice situations. We introduce an axiom system that formalizes this idea. Our main result characterizes the preference maximizing opportunity set. It is a maximal set that consists of mutually comparable alternatives. It also has the property that it maximizes the sum of the distances between its ordered elements for some appropriate metric imposed on the set of possible choices.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 06-14.

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Date of creation: Aug 2006
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Handle: RePEc:ecl:corcae:06-14

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Article
- Ani Guerdjikova & Alexander Zimper, 2008. "Flexibility of choice versus reduction of ambiguity," Social Choice and Welfare, Springer, vol. 30(3), pages 507-526, April. [Downloadable!] (restricted)

Find related papers by JEL classification:
D69 - Microeconomics - - Welfare Economics - - - Other
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01. [Downloadable!] (restricted)
Other versions:
- W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
Alexander Ludwig & Alexander Zimper, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," MEA discussion paper series 04060, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
Other versions:
- Ludwig, Alexander & Zimper, Alexander, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," Sonderforschungsbereich 504 Publications 04-31, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
- Alexander Ludwig & Alexander Zimper, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," MEA discussion paper series 04060, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
- Ludwig, Alexander & Zimper, Alexander, 2006. "Investment behavior under ambiguity: The case of pessimistic decision makers," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 111-130, September. [Downloadable!] (restricted)
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Other versions:
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Other versions:
- Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2006. "Temptation–Driven Preferences," Boston University - Department of Economics - Working Papers Series WP2006-024, Boston University - Department of Economics. [Downloadable!]
- Eddie Dekel & Barton Lipman & Aldo Rustichini, 2006. "Temptation–Driven Preferences," Discussion Papers 1423, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
- Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2009. "Temptation-Driven Preferences," Review of Economic Studies, Blackwell Publishing, vol. 76(3), pages 937-971, 07. [Downloadable!] (restricted)
Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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Other versions:
- Karni, E. & Safra, Z., 1988. "Behaviorally Consistent Optimal Stopping Rules," Papers 9-88, Tel Aviv.
Eric Danan & Anthony Ziegelmeyer, 2004. "Are preferences incomplete? An experimental study using flexible choices," Papers on Strategic Interaction 2004-23, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]

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