9 - task sensitive preferences Flashcards
What are the ways that the descriptive adequecy of EUT as a model for risk preference are challenged
- Allais paradoxes
- intransitivity and preference cycles
- preference reversal
what are task sensitive preferences
preferences are formed by the decision problems faced
- you decide you preferences after you know what the problem is
- preferences are inherently comparative
what does inherently comparative preferences mean
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
how is salience theory an example model of inherently comparative preferences
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
what is transitivity
if A preferred to b, and b preferred to c - then A is preferred to C
any maximising model satisfies the property of …
transitivity of preferences
intransitivity suggests…
challenges any maximising model of preference
- challenged EUT
why wouldnt someone obey transitivity
because their preferences are inherently comparaitive
when would a preference cycle occur
A > C > B > A
- 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
what are the reasons behind why the preference cycle comes about
- 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
what does Loomes Starmer Sugden (1991) study explore
what is regret theory
- 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
what did LSS find
- 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
what does LSS study suggest
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
what is preference reversal
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
what are the 2 gambles in PR
P-bet = smaller prize, higher probability of winning
$-bet = larger prize, smaller probability of winning
what are the choice task and valuation task
choice task
choose between P bet and $ bet
valuation task
put monetary value on each gamble separately
what does standard preference theory predict
the one you choose you prefer so you will also put a higher value on it compared to the other
if the preference reversal phenomemon is found, what does this imply
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
what did Cubitt Munro and Starmer (2004) find
- evidence of phenomemenon
- $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
in CMS what are the possible responses
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
what did CMS find
- consistency is more common that PR
- of PR - majority are standard (choose P) and not counter
what does preference reversal imply
how is it different to standard preference theory
inconsistent with standrard
- you choose something that you dont value as highly
- no optimisation principles - people arent optimising their choices
what are the 3 line of explanation for the preference reversal phenomenon
why might it happen
- artefact of incentives
- intransitivity
- could PR reflect intransitive preferences - violation of procedure invariance
what is violation of procedure invariance point to explain PR
what is procedure invariance
= 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
standard PR
P chosen over $
monetary value of $ > P
if procedure invariance was satisfied …
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
how can we tell if PR reflects intrasnitive preferences rather than violation of invariance procedure
TSK
PR could be violation of procedure invariance = casting doubt on experimental procedures
but what is the other option if it isnt
intransitivity
P > $ ~ M($) > M(P) ~ P
