This dissertation consists of two essays studying economic agents who choose menus, or opportunity sets from which they will make a choice at a later date. The common theme is that the utility of a menu can be affected by inclusion of alternatives that are not subsequently chosen. This effect can create either a preference for commitment or a preference for flexibility.
The first essay models an agent who experiences temptation when choosing from a menu of lotteries, and who is self-aware and anticipates her future behavior when choosing between menus. Her desire to eliminate tempting alternatives from a menu creates a preference for commitment. When studying menus of lotteries, the literature has typically assumed that preferences satisfy the Independence axiom. Independence requires that the ranking of two menus is not affected if each is mixed (probabilistically) with a common third menu. In particular, the preference for commitment is invariant under Independence. This essay argues that intuitive behavior may require that the preference for commitment be affected by such mixing, and hence be mixture-dependent. To capture such behavior, a generalization of the temptation and self-control model of Gul and Pesendorfer (2001) is provided. The model generalizes Gul and Pesendorfer (2001) by replacing their Independence axiom with a suitably adapted version of the Mixture-Betweenness axiom of Chew (1989) and Dekel (1986). The result is an implicit utility model in which utility is defined as the unique solution of an equation that depends on the agent's commitment and temptation rankings, neither of which needs to satisfy the Independence axiom. Axiomatic characterization of the model exploits a novel extension of the Mixture Space Theorem to preferences that satisfy Mixture-Betweenness. Since the Mixture Space Theorem is central to decision theory, this extension is potentially useful for addressing issues in economics other than temptation and self-control.
The second essay explores the testable implications of the linear representations considered in Dekel et al. (2001). Dekel et al. (2001) extends the seminal model of preference for flexibility due to Kreps (1979) by considering menus of lotteries rather than deterministic alternatives. They show that a simple set of axioms characterizes a representation that can be interpreted as if the agent is uncertain about her future tastes. This taste uncertainty is summarized by the “subjective state space”, consisting of the set of possible future preferences over lotteries. Their approach is axiomatic, thus testability requires that the entire preference order be observable. This essay provides a corresponding revealed preference analysis and assumes that only finitely many choices are observed. It is shown that for a particular class of data sets, the characterizing conditions can be reformulated as nonlinear systems of inequalities for which the existence of solutions can be verified using numerical methods. Hence, for this type of data, the analysis provides a test for the subjective state space hypothesis that is, in principle, implementable. In addition, the analysis covers the case where available data involves only menus of alternatives (and not lotteries). Hence, it also provides revealed preference characterizations for Kreps (1979).
| Identifer | oai:union.ndltd.org:bu.edu/oai:open.bu.edu:2144/43247 |
| Date | 30 October 2021 |
| Creators | Payro Chew, Fernando |
| Contributors | Epstein, Larry G. |
| Source Sets | Boston University |
| Language | en_US |
| Detected Language | English |
| Type | Thesis/Dissertation |
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