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Preference Cloud Theory: Imprecise Preferences and Preference Reversals

Author

Listed:
  • Bayrak, Oben K.

    (CERE and Department of Forest Economics, SLU)

  • Hey, John D.

    (Department of Economics, University of York)

Abstract

This paper presents a new theory, called Preference Cloud Theory, of decision-making under uncertainty. This new theory provides an explanation for empirically-observed Preference reversals. Central to the theory is the incorporation of preference imprecision which arises because of individuals’ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha model (which builds on Hurwicz’s criterion) and construct a simple model which helps us to understand various anomalies discovered in the experimental economics literature that standard models cannot explain.

Suggested Citation

  • Bayrak, Oben K. & Hey, John D., 2015. "Preference Cloud Theory: Imprecise Preferences and Preference Reversals," CERE Working Papers 2015:9, CERE - the Center for Environmental and Resource Economics.
    • Handle: RePEc:hhs:slucer:2015_009
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    Cited by:

    1. Qiyan Ong & Jianying Qiu, 2023. "Paying for randomization and indecisiveness," Journal of Risk and Uncertainty, Springer, vol. 67(1), pages 45-72, August.

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    JEL classification:

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

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