We thank Eddie Dekel, Bart Lipman, Philipp Sadowski, a co-editor, and two anonymous referees for useful comments. We owe special thanks to Haluk Ergin, who contributed crucially to the conception and execution of this research.
Preference for Flexibility and Random Choice
Article first published online: 24 JAN 2013
© 2013 The Econometric Society
Volume 81, Issue 1, pages 341–361, January 2013
How to Cite
Ahn, D. S. and Sarver, T. (2013), Preference for Flexibility and Random Choice. Econometrica, 81: 341–361. doi: 10.3982/ECTA10431
- Issue published online: 21 JAN 2013
- Article first published online: 24 JAN 2013
- Manuscript received November, 2011; final revision received May, 2012.
- Preference for flexibility;
- random choice;
- subjective state space;
- unforeseen contingencies
We study a two-stage model where the agent has preferences over menus as in Dekel, Lipman, and Rustichini (2001) in the first period and then makes random choices from menus as in Gul and Pesendorfer (2006) in the second period. Both preference for flexibility in the first period and strictly random choices in the second period can be, respectively, rationalized by subjective state spaces. Our main result characterizes the representation where the two state spaces align, so the agent correctly anticipates her future choices. The joint representation uniquely identifies probabilities over subjective states and magnitudes of utilities across states. We also characterize when the agent completely overlooks some subjective states that realize at the point of choice.