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Cognitive Preference Reversal or Market Price Reversal?

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  • Xiaoyong Chai

Abstract

Preference Reversal Phenomenon (PRP) has been most often scrutinized as a puzzle of ‘preferences’, while the discovery of the ‘endowment effect’ explicitly questions the parity between preference and price. The author's experiment (N = 186) connects these two extraordinary findings and illustrates that PRP is only a reversal of price in a ‘market.’ PRP merely proves that subjects demand to be compensated based on loss under market access deprivation when a ‘maximum buying’/‘minimum selling’ price is elicited, and preference transitivity is restored once the misleading market manipulation is experimentally controlled. By defending preference transitivity, the author asserts that normal access to the bargaining process is indispensable for a competitive market where preference price parity is required. To make valid measurements of preference and price, the sealed envelope method is substituted for the judged‐indifferent‐point (JIP) method, and the binding statement method is substituted for the Becker‐DeGroot‐Marschack method. McNemar test scores are calculated to compare the effects of different methods.

Suggested Citation

  • Xiaoyong Chai, 2005. "Cognitive Preference Reversal or Market Price Reversal?," Kyklos, Wiley Blackwell, vol. 58(2), pages 177-194, May.
  • Handle: RePEc:bla:kyklos:v:58:y:2005:i:2:p:177-194
    DOI: 10.1111/j.0023-5962.2005.00284.x
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    Cited by:

    1. Joyce E Berg & John W Dickhaut & Thomas A Rietz, 2004. "Preference Reversals: The Impact of Truth-Revealing Incentives," Levine's Bibliography 122247000000000571, UCLA Department of Economics.
    2. Holger Müller & Eike Benjamin Kroll & Bodo Vogt, 2010. "When Judgments and Preferences Fail to Conform: Research on Preference Reversals for Product Purchases," FEMM Working Papers 100003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. 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.

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