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Flexibility of choice versus reduction of ambiguity

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  • Ani Guerdjikova
  • Alexander Zimper

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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  • Ani Guerdjikova & Alexander Zimper, 2008. "Flexibility of choice versus reduction of ambiguity," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(3), pages 507-526, April.
    • Handle: RePEc:spr:sochwe:v:30:y:2008:i:3:p:507-526
    DOI: 10.1007/s00355-007-0255-y
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    References listed on IDEAS

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    1. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2009. "Temptation-Driven Preferences," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(3), pages 937-971.
    2. Karni, Edi & Safra, Zvi, 1990. "Behaviorally consistent optimal stopping rules," Journal of Economic Theory, Elsevier, vol. 51(2), pages 391-402, August.
    3. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, January.
    4. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
    5. Ludwig, Alexander & Zimper, Alexander, 2006. "Investment behavior under ambiguity: The case of pessimistic decision makers," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 111-130, September.
    6. 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.
    7. Mitchell, Olivia S. & Utkus, Stephen P. (ed.), 2004. "Pension Design and Structure: New Lessons from Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780199273393.
    8. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
    9. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    10. 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.
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    Cited by:

    1. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    2. Arlegi, Ritxar & Bourgeois-Gironde, Sacha & Hualde, Mikel, 2022. "Attitudes toward choice with incomplete preferences: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 663-679.
    3. Eric Danan & Ani Guerdjikova & Alexander Zimper, 2012. "Indecisiveness aversion and preference for commitment," Theory and Decision, Springer, vol. 72(1), pages 1-13, January.
    4. Ritxar Arlegi & Sacha Bourgeois-Gironde & Mikel Hualde, 2021. "On the aversion to incomplete preferences," Theory and Decision, Springer, vol. 90(2), pages 183-217, March.

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    More about this item

    JEL classification:

    • D69 - Microeconomics - - Welfare Economics - - - Other
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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