Subjective Ambiguity and Preference for Flexibility

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. * I am especially indebted to Faruk Gul for his guidance and encouragement. I am grateful to Wolfgang Pesendorfer, and to Daniel Gottlieb and Justinas Pelenis for helpful comments and discussions. I also thank

Additive Representation for Preferences Over Menus in Finite Choice Settings

“…The results presented in this paper also shed some light on the individual role of substantive axioms in the literature. For instance, preferences satisfying SM but not OSM have been studied by Ergin [5] and Natenzon [15] in the finite setting. Theorem 1 shows that every such a preference has an extension to the lottery setting.…”

“…To simplify the exposition, all proofs are collected in the Appendix. 1 The topics studied include: preference for flexibility [1], [3], [13], [15], [23], temptation and self-control [1], [2], [3], [7], [8], [11], [17], [18], [19], [20], [21], guilt [4], perfectionism [10], self-deception [12], regret [24], contemplation costs [5], [6] and thinking aversion [22].…”

Additive representation for preferences over menus in finite choice settings

“…Preferences on M satisfying set monotonicity but not ordinal submodularity are studied by Ergin (2003) and Natenzon (2016). Proposition 3 shows that every such preference has an extension to the lottery setting satisfying the DLR axioms.…”