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The Preference Reversal Phenomenon: Response Mode, Markets and Incentives

Cox, James C. and Grether, David M. (1993) The Preference Reversal Phenomenon: Response Mode, Markets and Incentives. Social Science Working Paper, 810. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20170828-162350199

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Abstract

This paper addresses the apparent conflict between the results of experiments on individual choice and judgment and the results of market experiments. Data are reported for experiments designed to analyze the effects of (a) economic incentives, repetition, feedback and information and (b) choice and valuation response modes on (c) subjects' decisions in paired market and nonmarket environments. Causes of divergent market and nonmarket behavior are identified in the context of the preference reversal phenomenon (PRP). Study of the PRP is extended to two types of market environments. The PRP is observed on the first repetition in a market setting (second price auction) with immediate feedback, both with and without financial incentives. However, after five repetitions of the auction, the subjects' bids are generally consistent with their choices and the asymmetry between the rates of predicted and unpredicted reversals disappears. An individual pricing task using the BDM mechanism yields similar results on the first repetition but results which differ from the second price auction on the fifth repetition. Choice tasks produce lower rates of reversals than do pricing tasks in both market and individual decision making settings.


Item Type:Report or Paper (Working Paper)
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http://resolver.caltech.edu/CaltechAUTHORS:20170829-073853859Related ItemPublished Version
Additional Information:Revised version. Originally dated to September 1993. We are grateful for financial support from the National Science Foundation (grant no. SES-8820552) and the California Institute of Technology. Research facilities were provided by the Economic Science Laboratory at the University of Arizona. Valuable computer programming was provided by Sean Comes and Shawn LaMaslcr. We thank Professor Jeffrey Dubin for his help in setting up the software for the generalized Tobit model, and Professors Joyce Berg and Graham Loomes, and Charles R. Plott for helpful comments. Published as Cox, James C., and David M. Grether. "The preference reversal phenomenon: Response mode, markets and incentives." Economic Theory 7, no. 3 (1996): 381-405.
Group:Social Science Working Papers
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NSFSES-8820552
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Series Name:Social Science Working Paper
Issue or Number:810
Record Number:CaltechAUTHORS:20170828-162350199
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170828-162350199
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80879
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:28 Aug 2017 23:42
Last Modified:03 Oct 2019 18:36

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