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Preference Reversals without the Independence Axiom

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  • Cox, James C
  • Epstein, Seth

Abstract

The preference reversal phenomenon was believed to be inconsistent with the transitivity axiom of decision theory. However, recent theoretical papers have demonstrated that the preference reversals that were observed in earlier experiments could be explained by subject violations of the independence axiom or the compound lottery axiom. Therefore, those preference reversals are not known to be inconsistent with generalization of expected utility theory that replace the independence axiom. The present paper reports the results of experiments in which a substantial proportion of subject responses violate the asymmetry axiom. These results are inconsistent with expected utility theory and its generalizations. Copyright 1989 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 79 (1989)
Issue (Month): 3 (June)
Pages: 408-26

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Handle: RePEc:aea:aecrev:v:79:y:1989:i:3:p:408-26

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Cited by:
  1. Vera Angelova & Olivier Armantier & Giuseppe Attanasi & Yolande Hiriart, 2013. "Relative Performance of Liability Rules: Experimental Evidence," Working Papers 2013-03, CRESE.
  2. William S. Neilson, 1993. "An Expected Utility-User's Guide to Nonexpected Utility Experiments," Eastern Economic Journal, Eastern Economic Association, vol. 19(3), pages 257-274, Summer.
  3. James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011. "Paradoxes and Mechanisms for Choice under Risk," Kiel Working Papers 1712, Kiel Institute for the World Economy.
  4. Berg, Joyce E. & Dickhaut, John W. & Rietz, Thomas A., 2010. "Preference reversals: The impact of truth-revealing monetary incentives," Games and Economic Behavior, Elsevier, vol. 68(2), pages 443-468, March.
  5. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.
  6. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  7. Roth, Timothy P., 1997. "Competence-difficulty gaps, ethics and the new social welfare theory," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 26(5), pages 533-552.
  8. Shogren, Jason F., 2006. "Experimental Methods and Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 19, pages 969-1027 Elsevier.
  9. Cox, James C., 2010. "Some issues of methods, theories, and experimental designs," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 24-28, January.
  10. Pechtl, Hans, 2004. "Das Preiswissen von Konsumenten: eine theoretisch-konzeptionelle Analyse," Wirtschaftswissenschaftliche Diskussionspapiere 01/2004, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
  11. Yoram Amiel & Frank Cowell & Liema Davidovitz & Avraham Polovin, 2008. "Preference reversals and the analysis of income distributions," Social Choice and Welfare, Springer, vol. 30(2), pages 305-330, February.
  12. Masatlioglu, Yusufcan & Ok, Efe A., 2005. "Rational choice with status quo bias," Journal of Economic Theory, Elsevier, vol. 121(1), pages 1-29, March.
  13. Peter Bohm & Hans Lind, 1993. "Preference reversal, real-world lotteries, and lottery-interested subjects," Framed Field Experiments 00131, The Field Experiments Website.
  14. Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
  15. Ian Bateman & Brett Day & Graham Loomes & Robert Sugden, 2007. "Can ranking techniques elicit robust values?," Journal of Risk and Uncertainty, Springer, vol. 34(1), pages 49-66, February.
  16. Guido Baltussen & G. Post & Martijn Assem & Peter Wakker, 2012. "Random incentive systems in a dynamic choice experiment," Experimental Economics, Springer, vol. 15(3), pages 418-443, September.

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