Distinguishing Common Ratio Preferences from Common Ratio Effects Using Paired Valuation Tasks

Christina McGranaghan, Kirby Nielsen, Ted O'Donoghue, Jason Somerville and Charles D. Sprenger

American Economic Review, 2024, vol. 114, issue 2, 307-47

Abstract: Without strong assumptions about how noise manifests in choices, we can infer little from existing empirical observations of the common ratio effect (CRE) about whether there exists an underlying common ratio preference (CRP). We propose to solve this inferential challenge using paired valuations, which yield valid inference under common assumptions. Using this approach in an online experiment with 900 participants, we find no evidence of a systematic CRP. To reconcile our findings with existing evidence, we present the same participants with paired choice tasks and demonstrate how noise can generate a CRE even for individuals without an associated CRP.

JEL-codes: C91 D81 D91 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20221535 (application/pdf)
https://doi.org/10.3886/E194003V1 (text/html)
https://www.aeaweb.org/doi/10.1257/aer.20221535.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/aer.20221535.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

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:aea:aecrev:v:114:y:2024:i:2:p:307-47

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aer.20221535

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().