IDEAS home Printed from https://ideas.repec.org/p/pri/metric/wp006.pdf.html
   My bibliography  Save this paper

Subjective Ambiguity and Preference for Flexibility

Author

Listed:
  • Paulo Natenzon

    (Princeton University)

Abstract

This paper studies preferences over menus of alternatives. A preference is monotonic when every menu is at least as good as any of its subsets. The main result is that any numerical representation for a monotonic preference can be written in minimax form. A minimax representation suggests a decision maker who faces uncertainty about her own future tastes and who exhibits an extreme form of ambiguity aversion with respect to this subjective uncertainty. Applying the main result in a setting with a finite number of alternatives leads to a natural weakening of the seminal characterization of preference for flexibility introduced by Kreps (1979). This new characterization clarifies the consequences of his last axiom, ordinal submodularity. While the remaining axioms are equivalent to the existence of a (weakly) increasing aggregator of second period maximal utilities, ordinal submodularity holds if and only if this aggregator can be taken to be strictly increasing.

Suggested Citation

  • Paulo Natenzon, 2010. "Subjective Ambiguity and Preference for Flexibility," Working Papers 1265, Princeton University, Department of Economics, Econometric Research Program..
  • Handle: RePEc:pri:metric:wp006.pdf
    as

    Download full text from publisher

    File URL: http://detc.princeton.edu/wp-content/uploads/2016/11/wp006.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eddie Dekel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2007. "Representing Preferences with a Unique Subjective State Space: A Corrigendum -super-1," Econometrica, Econometric Society, vol. 75(2), pages 591-600, March.
    2. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-577, May.
    3. Kalyan Chatterjee & R. Krishna, 2011. "On preferences with infinitely many subjective states," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 85-98, January.
    4. David S. Ahn & Todd Sarver, 2013. "Preference for Flexibility and Random Choice," Econometrica, Econometric Society, vol. 81(1), pages 341-361, January.
    5. Gorno, Leandro, 2016. "Additive representation for preferences over menus in finite choice settings," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 41-47.
    6. David Dillenberger & Andrew Postlewaite & Kareen Rozen, 2017. "Optimism and Pessimism with Expected Utility," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 1158-1175.
    7. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    8. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
    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. Epstein, Larry G. & Marinacci, Massimo & Seo, Kyoungwon, 2007. "Coarse contingencies and ambiguity," Theoretical Economics, Econometric Society, vol. 2(4), December.
    11. Haluk Ergin & Todd Sarver, 2010. "A Unique Costly Contemplation Representation," Econometrica, Econometric Society, vol. 78(4), pages 1285-1339, July.
    12. Sadowski, Philipp, 2008. "Conditional Preference for Flexibility: Eliciting Beliefs from Behavior," MPRA Paper 8614, University Library of Munich, Germany.
    13. Schenone, Pablo, 2016. "Identifying subjective beliefs in subjective state space models," Games and Economic Behavior, Elsevier, vol. 95(C), pages 59-72.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Richter, Michael & Rubinstein, Ariel, 2019. ""Convex preferences": a new definition," Theoretical Economics, Econometric Society, vol. 14(4).

    More about this item

    Keywords

    alternatives; choice theory; monotonic preference;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pri:metric:wp006.pdf. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bobray Bordelon). General contact details of provider: http://edirc.repec.org/data/exprius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.