Do preference reversals generalise? Results on ambiguity and loss aversion

Linden J. Ball, Nicholas Bardsley and Tom Ormerod

Journal of Economic Psychology, 2012, vol. 33, issue 1, 48-57

Abstract: Preference reversals are frequently observed in the lab, but almost all designs use completely transparent prospects, which are rarely features of decision making elsewhere. This raises questions of external validity. We test the robustness of the phenomenon to gambles that incorporate realistic ambiguity in both payoffs and probabilities. In addition, we test a recent explanation of preference reversals by loss aversion, which would also restrict the incidence of reversals outside the lab. According to this account, reversals occur largely because the valuation task endows subject with a gamble, activating loss aversion. This contrasts with the choice task, where the reference point is pre-experiment wealth. We test this explanation by holding the reference point constant. Our evidence suggests that reversals are only slightly diminished with ambiguity. We find no evidence supporting their explanation by loss aversion.

Keywords: Preference reversals; External validity; Ambiguity; Loss aversion (search for similar items in EconPapers)
JEL-codes: C91 D03 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167487011001310
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:33:y:2012:i:1:p:48-57

DOI: 10.1016/j.joep.2011.09.001

Access Statistics for this article

Journal of Economic Psychology is currently edited by G. Antonides and D. Read

More articles in Journal of Economic Psychology from Elsevier
Bibliographic data for series maintained by Catherine Liu ().