Econometrica: Jan 1999, Volume 67, Issue 1

Preference for Flexibility in a Savage Framework

https://doi.org/10.1111/1468-0262.00005
p. 101-119

Klaus Nehring

We study preferences over Savage acts that map states to opportunity sets and satisfy the Savage axioms. Preferences over opportunity sets may exhibit a due to an implicit uncertainty about future preferences reflecting anticipated unforeseen contingencies. The main result of this paper characterizes maximization of the expected indirect utility in terms of an ‘Indirect Stochastic Dominance’ axiom that expresses a preference for ‘more opportunities in expectation.’ The key technical tool of the paper, a version of Möbius inversion, has been imported from the theory of nonadditive belief functions; it allows an alternative representation using Choquet integration, and yields a simple proof of Kreps' (1979) classic result.

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Supplement to "Bubbles and Self-Enforcing Debt"

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Supplement to "Inference for Parameters Defined by Moment Inequalities Using Generalized Moment Selection"

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