Contingent preference for flexibility: Eliciting beliefs from behavior

Abstract

Following Kreps (1979), I consider a decision maker who is uncertain about her future taste. This uncertainty leaves the decision maker with a preference for flex- ibility: When choosing among menus that contain alternatives for future choice, she weakly prefers menus with additional alternatives. Standard representations that accommodate this choice pattern cannot distinguish tastes (indexed by a subjective state space) and beliefs (a probability measure over the subjective states) as different concepts. I allow choice between menus to depend on ob- jective states.My axioms provide a representation that uniquely identifies beliefs, provided objective states are sufficiently relevant for choice. I suggest that this re- sult can provide choice theoretic substance to the assumption, commonly made in the (incomplete) contracting literature, that contracting parties who knoweach others’ ranking of contracts also share beliefs about each others’ future tastes in the face of unforeseen contingencies.