The “play-out” effect and preference reversals: Evidence for noisy maximization

Joyce E. Berg, John Dickhaut and Thomas A. Rietz

Journal of Economic Behavior & Organization, 2013, vol. 94, issue C, 160-171

Abstract: In this paper, we document a “play-out” effect in preference reversal experiments. We compare data where preferences are elicited using (1) purely hypothetical gambles, (2) played-out, but unpaid gambles and (3) played-out gambles with truth-revealing monetary payments. We ask whether a model of stable preferences with random errors (e.g., expected utility with errors) can explain the data. The model is strongly rejected in data collected using purely hypothetical gambles. However, simply playing-out the gambles, even in the absence of payments, shifts the data pattern so that noisy maximization is no longer rejected. Inducing risk preferences using a lottery procedure, using monetary incentives or both shift the data pattern further so that noisy maximization achieves the best possible fit to the aggregate data. No model could fit the data better. We argue that play-out shifts the response pattern by inducing value because subjects can use outcomes to “keep score.” Induction or monetary payments create stronger induced values, shifting the pattern further.

Keywords: Preference reversal; Risky choice; Decision making; Uncertainty (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268112001783
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:jeborg:v:94:y:2013:i:c:p:160-171

DOI: 10.1016/j.jebo.2012.09.012

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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