Extended preferences and freedom of choice |
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Authors: | Eyal Baharad Shmuel Nitzan |
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Institution: | (1) Department of Economics, Harvard University, Cambridge MA 02138, U.S.A., US;(2) Department of Economics, Bar-Ilan University, Ramat-gan 52900, Israel, IL |
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Abstract: | The common choice theory in economics is based on the assumption that an individual is defined in terms of a binary preference
relation. This preference relation is defined over alternatives without taking into account menu dependence and, in particular,
freedom of choice or, more generally, the set that contains the alternatives. In this study we clarify the nature and the
significance of freedom of choice which may positively or negatively affect the individual's welfare. Our proposed extended
preference relation of the individual takes into account both the particular alternative and the opportunity set that he faces.
This extended relation does not induce ranking of opportunity sets. Its restriction to a particular opportunity set is the
paradigmatic preference relation and it can capture the dependence of preferences on freedom of choice. Our main result establishes
the inconsistency between dependence of extended preferences on freedom of choice and the existence of a utility that represents
the paradigmatic preference relation and any of its restrictions.
Received: 30 December 1997/Accepted: 6 September 1999 |
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