Asymmetric Valuation of Gains and Losses and Preference Order Assumptions

Jack Knetsch

Economic Inquiry, 1995, vol. 33, issue 1, 134-41

Abstract: Recent findings of large differences between people's valuations of gains and losses imply that the common preference order axioms of completeness, transitivity, and dominance on which economic analyses and predictions of consumer behavior are largely based, may not be consistent with actual choices. This paper reports the results of an experimental test of the preference order assumptions using real exchanges of two goods and money. The findings show consistent differences in the valuation placed on goods and money, depending on whether the entitlements are being acquired or given up, and provide direct evidence of preference assumption violations. Copyright 1995 by Oxford University Press.

Date: 1995
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