Are Preference Reversals Errors? An Experimental Investigation
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This paper investigates whether some part of the preference reversal phenomenon can be attributed to errors in the responses of subjects in experiments. Such errors have been well documented in other investigations of behaviour in risky decision problems, but their relevance to the preference reversal phenomenon has not been explored. Building on earlier work, we develop an extended error model and apply it to the results of an experiment in which subjects tackle risky choice problems on five separate occasions. In this experiment subjects had to answer choice questions in three occasions and to state selling and buying prices in the remaining two occasions. Our results indicate that scale compatibility can be ruled out as a significant sole explanation of the preference reversal phenomenon. Moreover, we can show that a considerable fraction of observed preference reversals can be classified as pricing errors, whereas choice errors turn out to play a minor role.
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- Are Preference Reversals Errors? An Experimental Investigation
Journal of Risk and Uncertainty
Volume 29, Issue 3 , pp 207-218
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- Kluwer Academic Publishers
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- preference reversal
- scale compatibility
- Industry Sectors
- Author Affiliations
- 1. Institut für Volkswirtschaftslehre, Abteilung Finanzmarkttheorie, Universität Hannover, Königsworther Platz 1, 30167, Hannover, Germany
- 2. Department of Economics, University of York, YORK, YO1 5DD, U.K
- 3. Dipartimento di Scienze Economiche, Universita Degli Studi di Bari, Via Camillo Rosalba 53, 70124, BARI, Italy.