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Preference Cloud Theory: Imprecise Preferences and Preference Reversals

Oben Bayrak () and John Hey ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Imprecise Preferences; Preference Reversals; Decision under Uncertainty; Anomalies in Expected Utility Theory (search for similar items in EconPapers)
JEL-codes: D0 D00 D01 D02 D03 D04 D8 D80 D81 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-hpe, nep-mic, nep-ore and nep-upt
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Working Paper: Preference Cloud Theory: Imprecise Preferences and Preference Reversals (2015) Downloads
Working Paper: Preference Cloud Theory: Imprecise Preferences and Preference Reversals (2015) Downloads
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