The causes of preference reversal
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Date
1990
Authors
Tversky, Amos
Slovic, Paul
Kahneman, Daniel
Journal Title
Journal ISSN
Volume Title
Publisher
American Economic Association
Abstract
Observed preference reversal (PR) cannot be adequately explained by violations of
independence, the reduction axiom, or transitivity. The primary cause of PR is the
failure of procedure invariance, especially the overpricing of low-probability
high-payoff bets. This result violates regret theory and generalized (nonindependent)
utility models. PR and a new reversal involving time preferences are
explained by scale compatibility, which implies that payoffs are weighted more
heavily in pricing than in choice. (JEL 215)
Description
15 pages
Keywords
Citation
Tversky, A., Slovic, P., Kahneman, D. (1990). The causes of preference reversal. American Economic Review, 80, 204-217.