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Preference Reversal
Author(s) -
Seidl Christian
Publication year - 2002
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/1467-6419.00184
Subject(s) - preference , skepticism , economics , certainty , divergence (linguistics) , positive economics , phenomenon , econometrics , psychology , microeconomics , epistemology , philosophy , linguistics
Preference reversal concerns a systematic divergence between prices of lotteries and subjects’ expressed preferences for playing the respective lotteries. This article surveys the discovery of preference reversal by psychologists, its re–examination and corroboration both by psychologists and later on by (first sceptical) economists, as well as the causes of preference reversal. The preference reversal phenomenon has been explained to be caused by four determinants, viz. by the mode of elicitation of certainty equivalents, by intransitivity of preferences, by overpricing and/or underpricing of lotteries, and by nonlinear probabilities. JEL classification: D81