Econometrica: Jan 2013, Volume 81, Issue 1

Preference for Flexibility and Random Choice
p. 341-361

David S. Ahn, Todd Sarver

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.

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Supplemental Material

Supplement to "Preference for Flexibility and Random Choice"

This appendix contains complete axiomatic foundations for two representations used in the paper.

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