I'm using
Android Studio 3.2.1,
rxjava:2.2.0,
Kotlin plugin version 1.3.11-release-Studio3.2-1
After typing in *.kt file: Observable.unsafeCreate{} and pressing Ctrl+Space between {} Android Studio shows me next suggestion:

The same suggestion Android Studio shows when I'm typing in *.java file.
I didn't make any configuration changes in Android Studio Preferences.
I guess you are importing Observable from rx - the first item in the completion list on the image below. Try to import Observable from io.reactivex - highlighted item in the completion list below, it may help: import io.reactivex.Observable.

To use it you need to import rxjava2:
implementation 'io.reactivex.rxjava2:rxjava:2.2.0'
EDIT:
As was figured out code completion dialog showed t -> because parameter in Action1.call(T t) called t. We can see it if we look at the signature of rx.Observable.unsafeCreate method in RxJava 1.3:
public static <T> Observable<T> unsafeCreate(OnSubscribe<T> f) {
return new Observable<T>(RxJavaHooks.onCreate(f));
}
OnSubscribe interface extends Action1<Subscriber<? super T>, and Action1 has next signature:
public interface Action1<T> extends Action {
void call(T t);
}
So parameter is called t and Android Studio suggests it as t ->.
In RxJava2 we have different signature:
public static <T> Observable<T> unsafeCreate(ObservableSource<T> onSubscribe) {...}
public interface ObservableSource<T> {
void subscribe(@NonNull Observer<? super T> observer);
}
We see that in ObservableSource.subscribe() method parameter is called observer, so we see it as observer->.
Conclusion:
IDEA's suggestion is based on the parameter's name of the method of Functional interface you are implementing as lambda.