IDEAS home Printed from https://ideas.repec.org/a/the/publsh/884.html
   My bibliography  Save this article

Contingent preference for flexibility: eliciting beliefs from behavior

Author

Listed:
  • ,

    (Department of Economics, Duke University)

Abstract

Following Kreps (1979), I consider a decision maker who is uncertain about her future taste. This uncertainty leaves the decision maker with a preference for flexibility: When choosing among menus containing alternatives for future choice, she weakly prefers menus with additional alternatives. Standard 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. I allow choice between menus to depend on objective states. My axioms provide a representation that uniquely identifies beliefs, provided objective states are sufficiently relevant for choice. I suggest this result as a choice theoretic foundation for the assumption, commonly made in the (incomplete) contracting literature, that contracting parties who know each others' ranking of contracts, also share beliefs about each others' future tastes in the face of unforeseen contingencies.

Suggested Citation

  • ,, 2013. "Contingent preference for flexibility: eliciting beliefs from behavior," Theoretical Economics, Econometric Society, vol. 8(2), May.
    • Handle: RePEc:the:publsh:884
    as

    Download full text from publisher

    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20130503/8785/275
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Higashi, Youichiro & Hyogo, Kazuya & Takeoka, Norio, 2009. "Subjective random discounting and intertemporal choice," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1015-1053, May.
    2. Kopylov, Igor, 2009. "Finite additive utility representations for preferences over menus," Journal of Economic Theory, Elsevier, vol. 144(1), pages 354-374, January.
    3. 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.
    4. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    5. Ozdenoren, Emre, 2002. "Completing the State Space with Subjective States," Journal of Economic Theory, Elsevier, vol. 105(2), pages 531-539, August.
    6. David S. Ahn & Todd Sarver, 2013. "Preference for Flexibility and Random Choice," Econometrica, Econometric Society, vol. 81(1), pages 341-361, January.
    7. Larry G. Epstein, 2006. "An Axiomatic Model of Non-Bayesian Updating," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 413-436.
    8. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 83-114.
    9. Partha Dasgupta & Douglas Gale & Oliver Hart & Eric Maskin (ed.), 1992. "Economic Analysis of Markets and Games: Essays in Honor of Frank Hahn," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262541599, December.
    10. 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.
    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. Laureti, Carolina & Szafarz, Ariane, 2023. "Banking regulation and costless commitment contracts for time-inconsistent agents," Economic Modelling, Elsevier, vol. 129(C).
    2. Karni, Edi & Safra, Zvi, 2016. "A theory of stochastic choice under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 164-173.
    3. Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.
    4. Schenone, Pablo, 2016. "Identifying subjective beliefs in subjective state space models," Games and Economic Behavior, Elsevier, vol. 95(C), pages 59-72.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philipp Sadowski, 2011. "Contingent Preference for Flexibility: Eliciting Beliefs from Behavior," Levine's Working Paper Archive 661465000000001189, David K. Levine.
    2. Sadowski, Philipp, 2008. "Conditional Preference for Flexibility: Eliciting Beliefs from Behavior," MPRA Paper 8614, University Library of Munich, Germany.
    3. Koida, Nobuo, 2022. "Indecisiveness, preference for flexibility, and a unique subjective state space," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    4. Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.
    5. Marie-Louise Vierø, 2012. "Contracting in Vague Environments," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 104-130, May.
    6. 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.
    7. Kochov, Asen, 2018. "A behavioral definition of unforeseen contingencies," Journal of Economic Theory, Elsevier, vol. 175(C), pages 265-290.
    8. Schenone, Pablo, 2016. "Identifying subjective beliefs in subjective state space models," Games and Economic Behavior, Elsevier, vol. 95(C), pages 59-72.
    9. Higashi, Youichiro & Hyogo, Kazuya & Takeoka, Norio, 2014. "Stochastic endogenous time preference," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 77-92.
    10. Giuseppe Dari-Mattiacci & Bruno Deffains, 2007. "Uncertainty of Law and the Legal Process," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 627-656, December.
    11. Nabil I. Al-Najjar & Luca Anderlini & Leonardo Felli, 2006. "Undescribable Events," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(4), pages 849-868.
    12. André Lapied & Thomas Rongiconi, 2013. "Ambiguity as a Source of Temptation: Modeling Unstable Beliefs," Working Papers halshs-00797631, HAL.
    13. Mira Frick & Ryota Iijima & Tomasz Strzalecki, 2019. "Dynamic Random Utility," Econometrica, Econometric Society, vol. 87(6), pages 1941-2002, November.
    14. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
    15. Schmitz, Patrick W., 2000. "Book Review of “Inflation and the Enforcement of Contracts” (Renner, 1999)," MPRA Paper 6971, University Library of Munich, Germany.
    16. Schmitz, Patrick W., 2013. "Incomplete contracts and optimal ownership of public goods," Economics Letters, Elsevier, vol. 118(1), pages 94-96.
    17. Alberto Bacchiega & Gianni De Fraja, 2004. "Constitutional Design and Investment in Cooperatives and Investor‐Owned Enterprises," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(2), pages 265-293, June.
    18. Barney Hartman‐Glaser & Benjamin Hébert, 2020. "The Insurance Is the Lemon: Failing to Index Contracts," Journal of Finance, American Finance Association, vol. 75(1), pages 463-506, February.
    19. Stéphane Saussier, 2000. "Coûts de transaction et choix contractuels : un test économétrique sur une entreprise publique," Économie et Prévision, Programme National Persée, vol. 145(4), pages 169-180.
    20. Zhao, Xiaojian, 2011. "Framing contingencies in contracts," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 31-40, January.

    More about this item

    Keywords

    Preference for flexibility; unique beliefs; unforeseen contingencies; incomplete contracts;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • 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
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    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:the:publsh:884. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin J. Osborne (email available below). General contact details of provider: http://econtheory.org .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.