Journal of Risk and Uncertainty

, Volume 52, Issue 1, pp 65–97 | Cite as

Preference reversals: Time and again

  • Carlos Alós-Ferrer
  • Ðura-Georg Granić
  • Johannes Kern
  • Alexander K. Wagner
Article

Abstract

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.

Keywords

Preference reversals Decision times Imprecise preferences Compatibility hypothesis 

JEL Classification

C91 D81 

Supplementary material

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Carlos Alós-Ferrer
    • 1
  • Ðura-Georg Granić
    • 1
    • 2
  • Johannes Kern
    • 1
  • Alexander K. Wagner
    • 1
    • 3
  1. 1.Department of EconomicsUniversity of CologneCologneGermany
  2. 2.Erasmus School of EconomicsErasmus University RotterdamRotterdamNetherlands
  3. 3.Vienna Center for Experimental Economics and Department of EconomicsUniversity of ViennaViennaAustria

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