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Flexibility of choice versus reduction of ambiguity

19 September 2012
Publication Type: Working Paper
JEL Code: D69, D81

This paper explores the problem of a social planner willing to improve the welfare of individuals who are unable to compare all available alternatives. The optimal decision trades off the individuals’ desire for flexibility versus their aversion towards ambiguous choice situations. We introduce an axiom system that formalizes this idea. Our main result characterizes the preference maximizing opportunity set. It is a maximal set that consists of mutually comparable alternatives. It also has the property that it maximizes the sum of the distances between its ordered elements for some appropriate metric imposed on the set of possible choices.

Series title: Working Paper 040
1 September 2006
Journal: Social Choice and Welfare, 30, 507-526
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