Preference for Verifiability

TL;DR

This paper introduces a decision model where decision makers value verifiability of outcomes, affecting their choices and preferences, especially in contexts like firms selecting carbon-reduction technologies.

Contribution

It provides an axiomatic characterization of preferences based on verifiability and introduces dual models for obscuring outcomes, advancing understanding of verification in decision-making.

Findings

Decision makers prefer verifiable outcomes when choosing actions.

The model captures preferences for transparency and verification in economic decisions.

Firms may choose less efficient options for better verifiability of results.

Abstract

Decision makers sometimes cannot observe the consequences of their actions ex-post. This paper axiomatically characterizes a decision model in which the decision maker cares about verifying that a good consequence has been achieved. Preferences over acts identify a set of events the decision maker expects to verify. Decision makers choose acts maximizing, in expectation over verifiable events, the worst-case utility consistent with each event. A dual model captures decision makers who instead seek to obscure poor outcomes from verification. As an application, firms choosing carbon-reduction technologies may prefer less efficient but more verifiable technologies to prove emission reductions to stakeholders.