Indecisiveness, preference for flexibility, and a unique subjective state space

Abstract

The objective of this study is to unify two major approaches for addressing uncertainty, namely, indecisiveness and preference for flexibility. Specifically, we assume preferences over alternatives and over menus as primitives, and axiomatize a joint representation of expected multi-utility (Dubra et al. 2004) and ordinal expected utility (Dekel et al. 2001), wherein the set of utility functions in the former is equivalent to the subjective state space in the latter. This result indicates that indecisiveness and preference for flexibility arise from the common underlying uncertainty about ex post tastes, that is, the subjective state space, albeit they may appear differently. Our key axiom is dominance consistency, which requires that the addition of an alternative to a menu strictly improves the menu evaluation if and only if the alternative is undominated by the menu. The main result can be extended to a specific class of ordinal expected utility, such as the additive representation. The relationship between the preference over alternatives and the commitment ranking, and the one-directional implications of dominance consistency, are also discussed.