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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)

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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Bibliographic Info

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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References

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  1. Alexander Ludwig & Alexander Zimper, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," MEA discussion paper series 04060, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  2. Eddie Dekel, 1997. "A Unique Subjective State Space for Unforeseen Contingencies," Discussion Papers 1202, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Eddie Dekel & Barton Lipman & Aldo Rustichini, 2006. "Temptation–Driven Preferences," Discussion Papers 1423, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
  5. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  6. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
  7. Karni, E. & Safra, Z., 1988. "Behaviorally Consistent Optimal Stopping Rules," Papers 9-88, Tel Aviv.
  8. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
  9. 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.
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Cited by:
  1. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  2. Eric Danan & Ani Guerdjikova & Alexander Zimper, 2012. "Indecisiveness aversion and preference for commitment," Post-Print hal-00872238, HAL.

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