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Conditional Preference for Flexibility: Eliciting Beliefs from Behavior

Author

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  • Sadowski, Philipp

Abstract

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.

Suggested Citation

  • Sadowski, Philipp, 2008. "Conditional Preference for Flexibility: Eliciting Beliefs from Behavior," MPRA Paper 8614, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8614
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    File URL: https://mpra.ub.uni-muenchen.de/8614/1/MPRA_paper_8614.pdf
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    References listed on IDEAS

    as
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    4. 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.
    5. Edi Karni & Philippe Mongin, 2000. "On the Determination of Subjective Probability by Choices," Management Science, INFORMS, vol. 46(2), pages 233-248, February.
    6. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
    7. Simon Grant & Edi Karni, 2005. "Why Does It Matter That Beliefs And Valuations Be Correctly Represented?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 917-934, August.
    8. Klaus Nehring, "undated". "Preference For Flexibility And Freedom Of Choice In A Savage Framework," Department of Economics 96-15, California Davis - Department of Economics.
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    Cited by:

    1. Gorno, Leandro, 2016. "Additive representation for preferences over menus in finite choice settings," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 41-47.
    2. Paulo Natenzon, 2010. "Subjective Ambiguity and Preference for Flexibility," Working Papers 1265, Princeton University, Department of Economics, Econometric Research Program..
    3. Leandro Gorno, 2010. "Additive representation for preferences over menus in finite choice settings," Working Papers 1292, Princeton University, Department of Economics, Econometric Research Program..

    More about this item

    Keywords

    Preference for Flexibility; Uniqueness; Contracts; Subjective Uncertainty;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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