Research Articles

Economic Theory

, Volume 27, Issue 2, pp 305-320

What is an ‘endogenous state space’?

  • Jacob S. SagiAffiliated withHaas School of Business, University of California at Berkeley Email author 

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Summary.

In the literature on choice under unforeseen contingencies, the decision maker behaves as if she aggregates possible instances of future rankings indexed by a set S. The set S is interpreted as a subjective state space even though subsequent rankings need not conform to any one of the aggregated utilities. This paper proposes a definition for a subjective state space under unforeseen contingencies that is topologically unique, derives its existence from preference primitives as opposed to the representation of preferences, and does not commit to an interpretation in which states correspond to future realized rankings. The definition topologically concurs with and extends the identification of the ‘essentially unique’ subjective state space due to Dekel, Lipman and Rustichini [4].

Keywords and Phrases:

Endogenous state space Unforeseen contingencies Preference for flexibility Incomplete preference relations Partial orders.