Does size matter? The Allais paradox and preference reversals with varying outcome magnitudes

Oliver, Adam and Sunstein, Cass (2019) Does size matter? The Allais paradox and preference reversals with varying outcome magnitudes. Journal of Behavioral and Experimental Economics, 78. pp. 45-60. ISSN 2214-8043

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Abstract

The common consequence effect and preference reversals are two of the foundational violations of the standard model of rational choice (i.e. von Neumann – Morgenstern expected utility theory) and, as such, played an important role in the development of empirical behavioural economics. One can hypothesise, however, that due to varying degrees of risk aversion when faced with outcomes of different magnitude, the rate of both of these violations may vary with outcome size. Using various types of outcome, this article reports tests of these violations using different outcome magnitudes in within-respondent designs. The results observed are broadly consistent across outcome type: the common consequence effect, while rarely being substantially observed in any of the tests undertaken, was often found to be somewhat susceptible to outcome size while preference reversals, which were everywhere substantially observed, were not. In and of itself, the observation of systematic preference reversals implies that preferences are often constructed according to the way in which questions are asked, and is sufficient to question the usefulness of stated preference techniques for informing public policy.

Item Type:	Article
Official URL:	https://www.journals.elsevier.com/journal-of-behav...
Additional Information:	© 2018 Elsevier Inc.
Divisions:	Social Policy
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory
Date Deposited:	07 Dec 2018 16:15
Last Modified:	14 Sep 2024 07:41
URI:	http://eprints.lse.ac.uk/id/eprint/91130

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