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Preference for Flexibility and Freedom of Choice in a Savage Framework

Listed author(s):
  • Klaus Nehring

    (Department of Economics, University of California Davis)

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 MÅ¡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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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 9615.

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Length: 49
Date of creation: 08 Jan 2003
Handle: RePEc:cda:wpaper:96-15
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