Preference reversals: Time and again
- 739 Downloads
This paper sheds new light on the preference reversal phenomenon by analyzing decision times in the choice task. In a first experiment, we replicated the standard reversal pattern and found that choices associated with reversals take significantly longer than non-reversals, and non-reversal choices take longer whenever long-shot lotteries are selected. These results can be explained by a combination of noisy lottery evaluations (imprecise preferences) and an overpricing phenomenon associated with the compatibility hypothesis. The first cause explains the existence of reversals, while the second explains the predominance of a particular type thereof. A second experiment showed that the overpricing phenomenon can be shut down, greatly reducing reversals, by using ranking-based, ordinally-framed evaluation tasks. This experiment also disentangled the two determinants of reversals, because imprecise evaluations still deliver testable predictions on decision times even in the absence of the overpricing phenomenon. Strikingly, when unframed ranking tasks were used, decision times in the choice phase were greatly reduced, even though this phase was identical across treatments. This observation is consistent with psychological insights on conflicting decision processes.
KeywordsPreference reversals Decision times Imprecise preferences Compatibility hypothesis
JEL ClassificationC91 D81
The authors gratefully acknowledge helpful comments from an anonymous referee, Mónica Capra, Urs Fischbacher, Nikos Georgantzis, Werner Güth, and seminar participants at Ca’ Foscari University (Venice), Emory University (Atlanta), University of Indiana at Bloomington, University of Innsbruck, Universidad Jaume I (Castellón), the TIBER XI conference in Tilburg, the Economic Science Association 2012 conference in Cologne, and the FUR XVI conference in Rotterdam. Wagner also gratefully acknowledges financial support from the German Research Foundation (DFG) through research fellowship WA3559/1-1.
- Alós-Ferrer, C., & Shi, F. (2015). Choice-induced preference change and the free-choice paradigm: a clarification. Judgment and Decision Making, 10(1), 34–49.Google Scholar
- Bargh, J.A., & Chartrand, T.L. (2000). The mind in the middle: a practical guide to priming and automaticity research. In Reis, H.T., & Judd, C.M. (Eds.) Handbook of research methods in social and personality psychology (pp. 253–285). NY: Cambridge University Press.Google Scholar
- Chabris, C.F., Laibson, D.I., Morris, C.L., Schuldt, J.P., & Taubinsky, D. (2009). The allocation of time in decision-making. Journal of the European Economic Association, 7(2), 682–637.Google Scholar
- Festinger, L. (1957). A theory of cognitive dissonance. Stanford: Stanford University Press.Google Scholar
- Grether, D.M., & Plott, C.R. (1979). Theory of choice and the preference reversal phenomenon. The American Economic Review, 69(4), 623–638.Google Scholar
- Stalmeier, P.F.M., Wakker, P.P., & Bezembinder, T.G.G. (1997). Preference reversals: violations of unidimensional procedure invariance. Journal of Experimental Psychology: Human Perception and Performance, 23(4), 1196–1205.Google Scholar
- Tversky, A., Slovic, P., & Kahneman, D. (1990). The causes of preference reversal. The American Economic Review, 80(1), 204–217.Google Scholar
- Wilcox, N.T. (1994). On a lottery pricing anomaly: time tells the tale. Journal of Risk and Uncertainty, 8(7), 311–324.Google Scholar