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Indecisiveness aversion and preference for commitment

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  • Eric Danan
  • Ani Guerdjikova
  • Alexander Zimper

Abstract

We present an axiomatic model of preferences over menus that is motivated by three assumptions. First, the decision maker is uncertain ex ante (i.e. at the time of choosing a menu) about her ex post (i.e. at the time of choosing an option within her chosen menu) preferences over options, and she anticipates that this subjective uncertainty will not resolve before the ex post stage. Second, she is averse to ex post indecisiveness (i.e. to having to choose between options that she cannot rank with certainty). Third, when evaluating a menu she discards options that are dominated (i.e. inferior to another option whatever her ex post preferences may be) and restricts attention to the undominated ones. Under these assumptions, the decision maker has a preference for commitment in the sense of preferring menus with fewer undominated alternatives. We derive a representation in which the decision maker's uncertainty about her ex post preferences is captured by means of a subjective state space, which in turn determines which options are undominated in a given menu, and in which the decision maker fears, whenever indecisive, to choose an option that will turn out to be the worst (undominated) one according to the realization of her ex post preferences.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 157.

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Date of creation: 2009
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Handle: RePEc:rza:wpaper:157

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Keywords: Opportunity sets; subjective uncertainty; indecisiveness; dominance;

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References

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  1. Eddie Dekel & Barton Lipman & Aldo Rustichini, 2006. "Temptation–Driven Preferences," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1423, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers, Economics Department, Princeton University 99f1, Economics Department, Princeton University.
  3. Guerdjikova, Ani & Zimper, Alexander, 2006. "Flexibility of Choice versus Reduction of Ambiguity," Working Papers, Cornell University, Center for Analytic Economics 06-14, Cornell University, Center for Analytic Economics.
  4. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, Econometric Society, vol. 47(3), pages 565-77, May.
  5. Eddie Dekel, 1997. "A Unique Subjective State Space for Unforeseen Contingencies," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1202, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Epstein, Larry G. & Marinacci, Massimo & Seo, Kyoungwon, 2007. "Coarse contingencies and ambiguity," Theoretical Economics, Econometric Society, Econometric Society, vol. 2(4), December.
  7. Eddie eckel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2005. "Representing Preferences with a Unique Subjective State Space: Corrigendum," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2005-042, Boston University - Department of Economics.
  8. Dubra, Juan & Maccheroni, Fabio & Ok, Efe A., 2004. "Expected utility theory without the completeness axiom," Journal of Economic Theory, Elsevier, Elsevier, vol. 115(1), pages 118-133, March.
  9. Ozdenoren, Emre, 2002. "Completing the State Space with Subjective States," Journal of Economic Theory, Elsevier, Elsevier, vol. 105(2), pages 531-539, August.
  10. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, Econometric Society, vol. 67(1), pages 101-120, January.
  11. Haluk Ergin & Todd Sarver, 2010. "A Unique Costly Contemplation Representation," Econometrica, Econometric Society, Econometric Society, vol. 78(4), pages 1285-1339, 07.
  12. Todd Sarver, 2008. "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, Econometric Society, Econometric Society, vol. 76(2), pages 263-305, 03.
  13. Eliaz, Kfir & Ok, Efe A., 2006. "Indifference or indecisiveness? Choice-theoretic foundations of incomplete preferences," Games and Economic Behavior, Elsevier, Elsevier, vol. 56(1), pages 61-86, July.
  14. Ortoleva, Pietro, 2008. "The Price of Flexibility: Towards a Theory of Thinking Aversion," MPRA Paper 12242, University Library of Munich, Germany.
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Cited by:
  1. Özgür Evren, 2012. "Scalarization Methods and Expected Multi-Utility Representations," Working Papers w0174, Center for Economic and Financial Research (CEFIR).

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