ABSTRACT
In this paper, I examine decision making in an environment where payoff relevant contingencies are vague, that is neither absolutely true nor absolutely false. In this model, an agent values acts that are predicated on linguistic statements, rather than an exogenous state-space. I axiomatize a class of preferences under which agent’s beliefs about the degree of truth of contingencies is identified from her choices. I then apply this model to a simple contracting environment wherein contracts must be explicitly constructed using said linguistic statements. I show that different restrictions on the contract writing technology can impart different outcomes. However, under mild conditions, as the cost of contractual complexity vanishes, so do the distortionary effects of vagueness.
Piermont, Evan, Vague Preferences and Contracts.
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