Flexibility of choice versus reduction of ambiguity |
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Authors: | Ani Guerdjikova Alexander Zimper |
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Institution: | (1) Department of Economics, Uris Hall 462, Cornell University, Ithaca, NY 14853, USA;(2) School of Economics, Faculty of Commerce, University of Cape Town, Private Bag, Rondebosch, 7701 Cape Town, South Africa |
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Abstract: | This paper explores the problem of a social planner willing to improve the welfare of individuals who are unable to compare
all available alternatives. The optimal decision trades off the individuals’ desire for flexibility versus their aversion
towards ambiguous choice situations. We introduce an axiom system that formalizes this idea. Our main result characterizes
the preference maximizing opportunity set. It is a maximal set that consists of mutually comparable alternatives. It also
has the property that it maximizes the sum of the distances between its ordered elements for some appropriate pseudometric
imposed on the set of possible choices. |
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Keywords: | |
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