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Conditional Preference for Flexibility: Eliciting Beliefs from Behavior

  • Sadowski, Philipp

Following Kreps (1979), we consider a decision maker with uncertain beliefs about her own future taste. This uncertainty leaves the decision maker with preference for flexibility: When choosing among menus containing alternatives for future choice, she weakly prefers larger menus. Existing representations accommodating this choice pattern cannot distinguish tastes (indexed by a subjective state space) and beliefs (a probability measure over the subjective states) as different concepts, making it impossible to relate parameters of the representation to choice behavior. We allow choice among menus to depend on exogenous states, interpreted as information. Our axioms yield a representation that uniquely identifies beliefs, provided the impact of information on choice is rich. The result is suggested as a choice theoretic foundation for the assumption, commonly made in the incomplete contracting literature, that contracting parties, who know each other's ranking of contracts, also share beliefs about each others future tastes in the face of unforeseen contingencies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8614.

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Date of creation: Apr 2008
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Handle: RePEc:pra:mprapa:8614
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  1. Klaus Nehring, . "Preference For Flexibility And Freedom Of Choice In A Savage Framework," Department of Economics 96-15, California Davis - Department of Economics.
  2. Ozdenoren, Emre, 2002. "Completing the State Space with Subjective States," Journal of Economic Theory, Elsevier, vol. 105(2), pages 531-539, August.
  3. Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
  4. Edi Karni, 2007. "Bayesian Decision Theory and the Representation of Beliefs," Levine's Bibliography 321307000000000776, UCLA Department of Economics.
  5. 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 WP2005-042, Boston University - Department of Economics.
  6. Ariel Rubinstein & Yuval Salant, 2007. "(A,f) Choice with Frames," Levine's Bibliography 843644000000000029, UCLA Department of Economics.
  7. Grant, S. & Karni, E., 2002. "Why Does it Matter that Beliefs and Valuations be Correctly Represented?," Discussion Paper 2002-12, Tilburg University, Center for Economic Research.
  8. Larry Epstein, 2002. "An Axiomatic Model of Non-Bayesian Updating," RCER Working Papers 498, University of Rochester - Center for Economic Research (RCER), revised Jan 2005.
  9. 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.
  10. Edi Karni & Philippe Mongin, 2000. "On the Determination of Subjective Probability by Choices," Management Science, INFORMS, vol. 46(2), pages 233-248, February.
  11. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  12. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
  13. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
  14. Dekel, Eddie & Lipman, Barton L. & Rustichini, Aldo, 1998. "Recent developments in modeling unforeseen contingencies," European Economic Review, Elsevier, vol. 42(3-5), pages 523-542, May.
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