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Conditional Preference for Flexibility: Eliciting Beliefs from Behavior

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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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    References listed on IDEAS

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    Cited by:

    1. Karni, Edi & Safra, Zvi, 2016. "A theory of stochastic choice under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 164-173.
    2. Gorno, Leandro, 2016. "Additive representation for preferences over menus in finite choice settings," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 41-47.
    3. Gorno, Leandro & Natenzon, Paulo, 2018. "Subjective ambiguity and preference for flexibility," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 24-32.
    4. Leandro Gorno, 2010. "Additive representation for preferences over menus in finite choice settings," Working Papers 1292, Princeton University, Department of Economics, Econometric Research Program..

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    More about this item

    Keywords

    Preference for Flexibility; Uniqueness; Contracts; Subjective Uncertainty;
    All these keywords.

    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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