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Are Preference Reversals Errors: An Experimental Investigation

Schmidt, U. and Hey, J.D. (2004) Are Preference Reversals Errors: An Experimental Investigation. Journal of Risk and Uncertainty, 29 (3). pp. 207-218. ISSN 0895-5646

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This paper investigates whether some part of the preference reversal phenomenon can be attributed to errors in the responses of subjects in experiments. Such errors have been well documented in other investigations of behaviour in risky decision problems, but their relevance to the preference reversal phenomenon has not been explored. Building on earlier work, we develop an extended error model and apply it to the results of an experiment in which subjects tackle risky choice problems on five separate occasions. In this experiment subjects had to answer choice questions in three occasions and to state selling and buying prices in the remaining two occasions. Our results indicate that scale compatibility can be ruled out as a significant sole explanation of the preference reversal phenomenon. Moreover, we can show that a considerable fraction of observed preference reversals can be classified as pricing errors, whereas choice errors turn out to play a minor role.

Item Type: Article
Keywords: preference reversal - errors - scale compatibility
Institution: The University of York
Academic Units: The University of York > Economics and Related Studies (York)
Depositing User: York RAE Import
Date Deposited: 11 Jun 2009 12:30
Last Modified: 11 Jun 2009 12:30
Published Version: http://dx.doi.org/10.1023/B:RISK.0000046143.10752....
Status: Published
Publisher: Springer Verlag
Identification Number: 10.1023/B:RISK.0000046143.10752.0a
URI: http://eprints.whiterose.ac.uk/id/eprint/6864

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