Conditional Preference for Flexibility: Eliciting Beliefs from Behavior

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Conditional Preference for Flexibility: Eliciting Beliefs from Behavior

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Sadowski, Philipp

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Philipp Sadowski

Abstract

Following Kreps (1979), we consider a decision maker with uncertain beliefs about her own future taste. This uncertainty leaves the decision maker with preference for flexibility: When choosing among menus containing alternatives for future choice, she weakly prefers larger menus. Existing 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, making it impossible to relate parameters of the representation to choice behavior. We allow choice among menus to depend on exogenous states, interpreted as information. Our axioms yield a representation that uniquely identifies beliefs, provided the impact of information on choice is rich. The result is suggested as a choice theoretic foundation for the assumption, commonly made in the incomplete contracting literature, that contracting parties, who know each other's ranking of contracts, also share beliefs about each others future tastes in the face of unforeseen contingencies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8614.

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Date of creation: Apr 2008
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Handle: RePEc:pra:mprapa:8614

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Find related papers by JEL classification:
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-05-10 (All new papers)
NEP-CDM-2008-05-10 (Collective Decision-Making)
NEP-EVO-2008-05-10 (Evolutionary Economics)
NEP-UPT-2008-05-10 (Utility Models & Prospect Theory)

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