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

Abstract

This paper unifies two seemingly different frameworks regarding uncertainty about tastes, namely preference for flexibility and indecisiveness. By identifying the set of lotteries as the domain of choice, and assuming preferences over alternatives and over menus as primitives, our main theorem axiomatizes a unique joint representation of expected multi-utility, as defined by Dubra et al. (2004), and ordinal expected utility, as defined by Dekel et al., (2001), wherein the set of expected utility functions in the former is equivalent to the subjective state space in the latter. This result indicates that preference for flexibility and indecisiveness both arise from an identical underlying uncertainty, albeit they may have different behavioral implications. Our key axiom is dominance consistency, which specifies 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. Conversely, relaxing dominance consistency establishes a discrepancy between the subjective state spaces derived from the two frameworks, which can support “boundedly rational” behavioral implications, such as the illusion of control and projection bias.