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Subjective states: A more robust model

  • Epstein, Larry G.
  • Seo, Kyoungwon

We study the demand for flexibility and what it reveals about subjective uncertainty. As in Kreps [D. Kreps, 1979. A representation theorem for 'preference for flexibility'. Econometrica 47, 565-577], Nehring [K. Nehring, 1996. Preference for flexibility and freedom of choice in a Savage framework. UC Davis Working Paper; K. Nehring, 1999. Preference for flexibility in a Savage framework. Econometrica 67, 101-119] and Dekel et al. [E. Dekel, B. Lipman, A. Rustichini, 2001. Representing preferences with a unique subjective state space. Econometrica 69, 891-934], the latter is represented by a subjective state space consisting of possible future preferences over actions to be chosen ex post. One contribution is to provide axiomatic foundations for a range of alternative hypotheses about the nature of these ex post preferences. Secondly, we establish a sense in which the subjective state space is uniquely pinned down by the ex ante ranking of (random) menus. Finally, we demonstrate the tractability of our representation by showing that it can model the two comparative notions "2 desires more flexibility than 1" and "2 is more averse to flexibility-risk than is 1."

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 67 (2009)
Issue (Month): 2 (November)
Pages: 408-427

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Handle: RePEc:eee:gamebe:v:67:y:2009:i:2:p:408-427
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  2. Epstein, Larry G. & Marinacci, Massimo & Seo, Kyoungwon, 2007. "Coarse contingencies and ambiguity," Theoretical Economics, Econometric Society, vol. 2(4), December.
  3. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
  4. Chew, Soo Hong, 1983. "A Generalization of the Quasilinear Mean with Applications to the Measurement of Income Inequality and Decision Theory Resolving the Allais Paradox," Econometrica, Econometric Society, vol. 51(4), pages 1065-92, July.
  5. Klaus Nehring, 2003. "Preference for Flexibility and Freedom of Choice in a Savage Framework," Working Papers 9615, University of California, Davis, Department of Economics.
  6. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
  7. Grandmont, Jean-Michel, 1972. "Continuity properties of a von Neumann-Morgenstern utility," Journal of Economic Theory, Elsevier, vol. 4(1), pages 45-57, February.
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