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Preference For Flexibility And Freedom Of Choice In A Savage Framework

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  • Klaus Nehring

Abstract

In this paper, we study preferences over Savage acts that map states to opportunity sets. Conditional preferences over opportunity sets may be inconsistent with indirect-utility maximization due to implicit uncertainty about future preferences (preference for flexibility), or to an intrinsic preference for freedom of choice. On a flexibility interpretation, the main result characterizes preferences based on maximizing the expected indirect utility in terms of an "Indirect Stochastic Dominance" axiom. The relevance of the result to a freedom-of-choice context is established on the basis of a novel multi-attribute conceptualization of the notion of effective freedom of choice; the theorem delivers an additive multi-attribute representation with optimal uniqueness properties. The key technical tool of the paper, a version of M bius inversion has been imported from the theory of (non-additive) "belief-functions;" it also yields a simple and intuitive proof of Kreps's (1979) classic result.

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  • Klaus Nehring, "undated". "Preference For Flexibility And Freedom Of Choice In A Savage Framework," Department of Economics 96-15, California Davis - Department of Economics.
    • Handle: RePEc:fth:caldec:96-15
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    File URL: http://www.econ.ucdavis.edu/working_papers/96-15.pdf
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    Cited by:

    1. Philipp Sadowski, 2011. "Contingent Preference for Flexibility: Eliciting Beliefs from Behavior," Levine's Working Paper Archive 661465000000001189, David K. Levine.
    2. Ortoleva, Pietro, 2013. "The price of flexibility: Towards a theory of Thinking Aversion," Journal of Economic Theory, Elsevier, vol. 148(3), pages 903-934.
    3. Dekel, Eddie & Lipman, Barton L. & Rustichini, Aldo, 1998. "Recent developments in modeling unforeseen contingencies," European Economic Review, Elsevier, vol. 42(3-5), pages 523-542, May.
    4. Sadowski, Philipp, 2008. "Conditional Preference for Flexibility: Eliciting Beliefs from Behavior," MPRA Paper 8614, University Library of Munich, Germany.
    5. Epstein, Larry G. & Seo, Kyoungwon, 2009. "Subjective states: A more robust model," Games and Economic Behavior, Elsevier, vol. 67(2), pages 408-427, November.

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