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"Preference Reversal" and the Theory of Choice Under Risk

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  • Karni, Edi
  • Safra, Zvi

Abstract

The paper shows that: (1) The preference reversal phenomenon is consistent with transitive preferences and constitutes a violation of the independence axiom. (2) The preference reversal phenomenon is accounted for by the interaction between the experimental design and respondents preferences and there is no experiment which can overcome this difficulty.

Suggested Citation

  • Karni, Edi & Safra, Zvi, 1984. ""Preference Reversal" and the Theory of Choice Under Risk," Foerder Institute for Economic Research Working Papers 275382, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275382
    DOI: 10.22004/ag.econ.275382
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    File URL: https://ageconsearch.umn.edu/record/275382/files/TEL-AVIV-FSWP-062.pdf
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    References listed on IDEAS

    as
    1. Menahem E. Yaari, 1984. "Risk Aversion Without Diminishing Marginal Utility," STICERD - Theoretical Economics Paper Series 106, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    2. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
    3. Loomes, Graham & Sugden, Robert, 1983. "A Rationale for Preference Reversal," American Economic Review, American Economic Association, vol. 73(3), pages 428-432, June.
    4. Uzi Segal, 1984. "Nonlinear Decision Weights with the Independence Axiom," UCLA Economics Working Papers 353, UCLA Department of Economics.
    5. Reilly, Robert J, 1982. "Preference Reversal: Further Evidence and Some Suggested Modifications in Experimental Design," American Economic Review, American Economic Association, vol. 72(3), pages 576-584, June.
    6. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Uzi Segal, 1986. "Stochastic Dominance for Two-Stage Lotteries," UCLA Economics Working Papers 416, UCLA Department of Economics.

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