9 - task sensitive preferences

Question 1

What are the ways that the descriptive adequecy of EUT as a model for risk preference are challenged

Answer 1

1. Allais paradoxes
2. intransitivity and preference cycles
3. preference reversal

Question 2

what are task sensitive preferences

Answer 2

preferences are formed by the decision problems faced
- you decide you preferences after you know what the problem is

• preferences are inherently comparative

Question 3

what does inherently comparative preferences mean

Answer 3

to evaluate the attractiveness of a lottery you have to be able to compare it to another lottery

• you cant place a value on it without comparing, knowing the other options

Question 4

how is salience theory an example model of inherently comparative preferences

Answer 4

agents choose the option with the best outcome in the event where the outcomes differ the most
- options cant be fully assessed without knowing the other options

Question 5

what is transitivity

Answer 5

if A preferred to b, and b preferred to c - then A is preferred to C

Question 6

any maximising model satisfies the property of …

Answer 6

transitivity of preferences

Question 7

intransitivity suggests…

Answer 7

challenges any maximising model of preference
- challenged EUT

Question 8

why wouldnt someone obey transitivity

Answer 8

because their preferences are inherently comparaitive

Question 9

when would a preference cycle occur

A > C > B > A

Answer 9

• if choices reflect strict preferences
• and if the decision criterion is to choose the lottery that is better in the event where they differ the most
• leads to a preference cycle = violates transitivity and maximisation

Question 10

what are the reasons behind why the preference cycle comes about

Answer 10

• when making the decision on what choice is better in the most influential event
• this depends on what both the lotteries in the choice are
• need to be able to compare

Question 11

what does Loomes Starmer Sugden (1991) study explore

what is regret theory

Answer 11

• investigates regret theory and how it can explain preference reversal
• preference cycles in one direction
• because of choosing the best option in the event where the outcomes differ the most - regret based

Question 12

what did LSS find

Answer 12

• lots of people are transitive
• people do have preference cycles (even though not the majority) - among this the predicted cycles are more frequent than unpredicted

Question 13

what does LSS study suggest

Answer 13

if triples set up so over emphasis on events with large outcome differences

we do see predicted cycles found in cases

suggests that people disobey transitivity - small portion

• created triples where instransitivity was possible - found small frequencies of it

Question 14

what is preference reversal

Answer 14

violation of standard preference theory

tendency for you to choose P bet in choice task but put higher monetary value on $ bet in valuation task

Question 15

what are the 2 gambles in PR

Answer 15

P-bet = smaller prize, higher probability of winning
$-bet = larger prize, smaller probability of winning

Question 16

what are the choice task and valuation task

Answer 16

choice task
choose between P bet and $ bet

valuation task
put monetary value on each gamble separately

Question 17

what does standard preference theory predict

Answer 17

the one you choose you prefer so you will also put a higher value on it compared to the other

Question 18

if the preference reversal phenomemon is found, what does this imply

Answer 18

preferences differ according to whether they are inferred from choice task or valuation task

• preferences depend on the tasks
• so they dont have 1 set of preferences that are true for any task

Question 19

what did Cubitt Munro and Starmer (2004) find

• evidence of phenomemenon

Answer 19

• $bet and P bet have similar expected values
• for each pair of bets, subject has to choose which option (seen together)
• put monetary value on each option separately

Question 20

in CMS what are the possible responses

Answer 20

standard theory
consistent prefer $ bet
consistent prefer P bet

standard preference reversal
- choose P bet but value $ best more highly

counter reversal
- choose $ but value P more highly

Question 21

what did CMS find

Answer 21

• consistency is more common that PR
• of PR - majority are standard (choose P) and not counter

Question 22

what does preference reversal imply

how is it different to standard preference theory

Answer 22

inconsistent with standrard

• you choose something that you dont value as highly
• no optimisation principles - people arent optimising their choices

Question 23

what are the 3 line of explanation for the preference reversal phenomenon

why might it happen

Answer 23

1. artefact of incentives
2. intransitivity
   - could PR reflect intransitive preferences
3. violation of procedure invariance

Question 24

what is violation of procedure invariance point to explain PR

what is procedure invariance

Answer 24

= preferences are not affected by procedures used to elicit them - have same preferences no matter the task

violation –> preferences depend on the task used to elicit them - different preferences for valuation and choice tasks

Question 25

standard PR

Answer 25

P chosen over $

monetary value of $ > P

Question 26

if procedure invariance was satisfied …

Answer 26

agent has 1 set of preferences that are revealed no matter the method of eliciting them

if i prefer P > $

i will choose P and i will value it higher

choices and valuations reveal the same preferences

Question 27

how can we tell if PR reflects intrasnitive preferences rather than violation of invariance procedure

Answer 27

TSK

Question 28

PR could be violation of procedure invariance = casting doubt on experimental procedures

but what is the other option if it isnt

Answer 28

intransitivity

P > $ ~ M($) > M(P) ~ P