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Do preference reversals generalise?:Results on ambiguity and loss aversion

Ball, Linden J. and Bardsley, Nicholas and Ormerod, Thomas (2012) Do preference reversals generalise?:Results on ambiguity and loss aversion. Journal of Economic Psychology, 33 (1). pp. 48-57. ISSN 0167-4870

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Abstract

Preference reversals are frequently observed in the lab, but almost all designs use completely transparent prospects, which are rarely features of decision making elsewhere. This raises questions of external validity. We test the robustness of the phenomenon to gambles that incorporate realistic ambiguity in both payoffs and probabilities. In addition, we test a recent explanation of preference reversals by loss aversion, which would also restrict the incidence of reversals outside the lab. According to this account, reversals occur largely because the valuation task endows subject with a gamble, activating loss aversion. This contrasts with the choice task, where the reference point is pre-experiment wealth. We test this explanation by holding the reference point constant. Our evidence suggests that reversals are only slightly diminished with ambiguity. We find no evidence supporting their explanation by loss aversion. (C) 2011 Elsevier B.V. All rights reserved.

Item Type: Article
Journal or Publication Title: Journal of Economic Psychology
Uncontrolled Keywords: Preference reversals ; External validity ; Ambiguity ; Loss aversion ; CHOICE
Subjects: B Philosophy. Psychology. Religion > BF Psychology
Departments: Faculty of Science and Technology > Psychology
ID Code: 53307
Deposited By: ep_importer_pure
Deposited On: 21 Mar 2012 09:27
Refereed?: Yes
Published?: Published
Last Modified: 09 Apr 2014 23:15
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/53307

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