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Preference Reversal

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  • Christian Seidl

Abstract

Preference reversal concerns a systematic divergence between prices of lotteries and subjects’ expressed preferences for playing the respective lotteries. This article surveys the discovery of preference reversal by psychologists, its re–examination and corroboration both by psychologists and later on by (first sceptical) economists, as well as the causes of preference reversal. The preference reversal phenomenon has been explained to be caused by four determinants, viz. by the mode of elicitation of certainty equivalents, by intransitivity of preferences, by overpricing and/or underpricing of lotteries, and by nonlinear probabilities. JEL classification: D81

Suggested Citation

  • Christian Seidl, 2002. "Preference Reversal," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 621-655, December.
    • Handle: RePEc:bla:jecsur:v:16:y:2002:i:5:p:621-655
    DOI: 10.1111/1467-6419.00184
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    Cited by:

    1. Dirk Engelmann & Guillaume Hollard, 2010. "Reconsidering the Effect of Market Experience on the “Endowment Effect”," Econometrica, Econometric Society, vol. 78(6), pages 2005-2019, November.
    2. Loomes, Graham & Starmer, Chris & Sugden, Robert, 2010. "Preference reversals and disparities between willingness to pay and willingness to accept in repeated markets," Journal of Economic Psychology, Elsevier, vol. 31(3), pages 374-387, June.
    3. Castillo, Geoffrey, 2021. "Preference reversals with social distances," Journal of Economic Psychology, Elsevier, vol. 86(C).
    4. Benjamin Radoc & Robert Sugden & Theodore L. Turocy, 2019. "Correlation neglect and case-based decisions," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 23-49, August.
    5. David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 97(1), pages 277-297, March.
    6. Kim, Younjun, 2015. "Essays on firm location decisions, regional development and choices under risk," ISU General Staff Papers 201501010800005579, Iowa State University, Department of Economics.
    7. Blavatskyy, Pavlo R., 2012. "The Troika paradox," Economics Letters, Elsevier, vol. 115(2), pages 236-239.
    8. Thomas Kourouxous & Thomas Bauer, 2019. "Violations of dominance in decision-making," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 209-239, April.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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