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Preference reversal, real-world lotteries, and lottery-interested subjects

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  • Peter Bohm
  • Hans Lind

Abstract

Preference reversal, or choice/reservation-price inconsistency, has been documented experimentally for certain types of lotteries. We argue that the relevance of these findings for real-world markets is uncertain because the type of objects used cannot exist on a market and because the extent to which the subjects had any real interest in the objects is unknown. Using real-world lotteries, we have tested choice/price consistency on subjects who prefer lotteries to cash. Preference reversal was observed, but the frequency was much lower than in earlier experiments. There were no differences between subjects who qualify as ""lottery interested"" and those who did not.

Suggested Citation

  • Peter Bohm & Hans Lind, 1993. "Preference reversal, real-world lotteries, and lottery-interested subjects," Framed Field Experiments 00131, The Field Experiments Website.
  • Handle: RePEc:feb:framed:00131
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    References listed on IDEAS

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    1. Pommerehne, Werner W & Schneider, Friedrich & Zweifel, Peter, 1982. "Economic Theory of Choice and the Preference Reversal Phenomenon: A Reexamination," American Economic Review, American Economic Association, vol. 72(3), pages 569-574, June.
    2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    3. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-638, September.
    4. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-217, March.
    5. Cox, James C & Epstein, Seth, 1989. "Preference Reversals without the Independence Axiom," American Economic Review, American Economic Association, vol. 79(3), pages 408-426, June.
    6. Tversky, Amos & Thaler, Richard H, 1990. "Anomalies: Preference Reversals," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 201-211, Spring.
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    Cited by:

    1. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    2. GlennW. Harrison & JohnA. List, 2008. "Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse," Economic Journal, Royal Economic Society, vol. 118(528), pages 822-843, April.
    3. Croson, Rachel & Gächter, Simon, 2010. "The science of experimental economics," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 122-131, January.
    4. Ball, Linden J. & Bardsley, Nicholas & Ormerod, Tom, 2012. "Do preference reversals generalise? Results on ambiguity and loss aversion," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 48-57.

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