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Flexibility of Choice versus Reduction of Ambiguity

  • Guerdjikova, Ani

    (Cornell U)

  • Zimper, Alexander

    (U of Cape Town)

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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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 06-14.

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Date of creation: Aug 2006
Date of revision:
Handle: RePEc:ecl:corcae:06-14
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  1. 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.
  2. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
  3. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2005. "Temptation–Driven Preferences," Boston University - Department of Economics - Working Papers Series WP2005-005, Boston University - Department of Economics.
  4. Ludwig, Alexander & Zimper, Alexander, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," Sonderforschungsbereich 504 Publications 04-31, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  6. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
  7. Karni, E. & Safra, Z., 1988. "Behaviorally Consistent Optimal Stopping Rules," Papers 9-88, Tel Aviv.
  8. 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.
  9. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
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