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Revisiting the diagnosis of intertemporal preference reversals

Author

Listed:
  • Zhihua Li

    (University of Birmingham)

  • Graham Loomes

    (University of Warwick)

Abstract

Intertemporal preference reversals occur when individuals choose future option A over future option B in a direct choice between the two but place a higher ‘immediate cash’ value on B than on A. Tversky et al. (1990) reported strong evidence of such reversals, which they attributed mainly to valuation biases rather than intransitivity. We find similar levels of reversals, even after adjusting for considerable degrees of variability and imprecision in people’s responses. However, we disagree with Tversky et al.’s conclusions about the causes of the majority of these reversals. We find substantial levels of intransitivity in respondents’ binary choices as well as differential overvaluation of both options relative to the values inferred from their choices.

Suggested Citation

  • Zhihua Li & Graham Loomes, 2022. "Revisiting the diagnosis of intertemporal preference reversals," Journal of Risk and Uncertainty, Springer, vol. 64(1), pages 19-41, February.
    • Handle: RePEc:kap:jrisku:v:64:y:2022:i:1:d:10.1007_s11166-022-09369-w
    DOI: 10.1007/s11166-022-09369-w
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    References listed on IDEAS

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    1. Graham Loomes & Ganna Pogrebna, 2017. "Do Preference Reversals Disappear When We Allow for Probabilistic Choice?," Management Science, INFORMS, vol. 63(1), pages 166-184, January.
    2. Kahneman, Daniel & Ritov, Ilana & Schkade, David A, 1999. "Economic Preferences or Attitude Expressions?: An Analysis of Dollar Responses to Public Issues," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 203-235, December.
    3. Susan Laury & Melayne McInnes & J. Todd Swarthout, 2012. "Avoiding the curves: Direct elicitation of time preferences," Journal of Risk and Uncertainty, Springer, vol. 44(3), pages 181-217, June.
    4. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-217, March.
    5. Loomes, Graham & Sugden, Robert, 1983. "A Rationale for Preference Reversal," American Economic Review, American Economic Association, vol. 73(3), pages 428-432, June.
    6. Frederick Mosteller & Philip Nogee, 1951. "An Experimental Measurement of Utility," Journal of Political Economy, University of Chicago Press, vol. 59(5), pages 371-371.
    7. Freeman, David & Manzini, Paola & Mariotti, Marco & Mittone, Luigi, 2016. "Procedures for eliciting time preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 235-242.
    8. Pavlo R. Blavatskyy & Hela Maafi, 2018. "Estimating representations of time preferences and models of probabilistic intertemporal choice on experimental data," Journal of Risk and Uncertainty, Springer, vol. 56(3), pages 259-287, June.
    9. Stephen L. Cheung, 2015. "Risk Preferences Are Not Time Preferences: On the Elicitation of Time Preference under Conditions of Risk: Comment," American Economic Review, American Economic Association, vol. 105(7), pages 2242-2260, July.
    10. David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 97(1), pages 277-297, March.
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    Cited by:

    1. Carlos Alós-Ferrer & Ernst Fehr & Michele Garagnani, 2022. "Identifying nontransitive preferences," ECON - Working Papers 415, Department of Economics - University of Zurich, revised Jan 2023.

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    More about this item

    Keywords

    Intertemporal choice; Preference reversals; Decision experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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