The Effects Of Risk Attitude And Probability Structure On Preference Reversals

Preference reversal phenomenon(PRP) is the phenomenon that the non-economic factors give rise to reverse preference states which was confirmed to widely exit in the economic behaviors, on the other hand, the thesis that the human are rational with consistent preference is the base of the traditional decision theory—Expected Utility Theory, and mean while the Expected Utility Theory is thought to be the paradigm. So PRP is a great challenge to the traditional decision theory, researchers proposed kinds of theories such as Contingent weighting theory, Prospect theory, Expression theory to explain the phenomenon since its discovery, but unfortunately, with partial success.On the basis of researches on preference reversals, this research propose that attitude has different extent effect on behaviors when expressed in different ways because of their own characteristics, and then has effect on preference reversals. The research consist of two experiments which investigate the effect of risk attitude and probability structure on the occurrence of preference reversals respectively in win and loss situations. In each situation, we investigate the preference reversals between two pair of preference elicitation methods: selection between lotteries versus setting the prices of lotteries, rating the attraction of lotteries versus setting prices of lotteries.The results indicated 1. Preference reversals exit in loss situation as well as win situation. 2. Risk attitude is of great importance in occurrence of the preference reversals. Indeed, the ways of expression have different extent effect on expression of risk attitude and risk attitude has significant effect on occurrence of preference reversals. In win situation, the frequency of preference reversals of subjects who are risk-averse is larger than that of subjects who are risk-seeking and in loss situation, the situation is reverse; and as for reverse preference reversal, its frequency is too small to be analyzed. 3. Compare with classic probability structure condition, preference reversal mode doesn't change in a new probability structure condition—when the low probability lottery is replaced by a very low probability lottery. Preference reversal universally exit and reverse preference reversal hardly exit, but in win situation, the frequency of preference reversal is significantly smaller while in loss situation, there is not significant effect.