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Preference for flexibility in the absence of learning: the risk attitude effect

Abstract

Individuals’ preferences over opportunity sets may display “preference for flexibility” which prescribes to gradually eliminate alternatives from a given set until a final choice is made. One rationale for this preference for flexibility is individuals’ incentive to postpone the final choice in order to better learn their underlying preferences over basic alternatives. In this paper we show that even in the absence of learning, preference for flexibility arises if individuals are risk-averse or, at least, are not very risk-seeking. Thus, individual’s attitude towards risk provides yet another rationale for preference for flexibility. One of our results is that in the absence of learning, risk-neutral as well as risk-averse individuals display the same, maximal preference for flexibility.

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This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

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Correspondence to Vladimir A. Karamychev.

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We thank Han Bleichrodt, Robert Dur, Chaim Fershtman, Maarten Janssen, Peran van Reeven, Peter Wakker, and Timothy van Zandt for helpful comments to and inspiring discussions. We are very grateful to the anonymous referee for very constructive comments and suggestions.

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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

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Ficco, S., Karamychev, V.A. Preference for flexibility in the absence of learning: the risk attitude effect. Econ Theory 40, 405–426 (2009). https://doi.org/10.1007/s00199-008-0385-1

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  • DOI: https://doi.org/10.1007/s00199-008-0385-1

Keywords

  • Individual choice
  • Preference for flexibility
  • Risk attitude

JEL Classification

  • D01
  • D81