Preference Reversal and Expertise

A detailed Summary of Preference Reversal and Expertise

Subjects in gambling tasks that involve both choice and pricing show a pattern of responses known as preference reversal. That is, although subjects in a choice condition generally will give higher preference ratings to "safe", high-probability/low-payoff, bets than to "longshot", low-probability/high-payoff, bets, when they are asked in a pricing condition to generate an amount of money that they would accept to avoid the gamble altogether they tend to give higher values for longshots over safer bets. Tversky, Slovic, and Kahneman (1990) demonstrate that among the several possible actions that subjects could be taking to produce this pattern, the critical factor appears to be the overpricing of the longshot bets. If subjects are actually offered a monetary figure (hypothetically) by the experimenter

This strategy, however, would be susceptible to preference reversals in the other direction. In the first case of maximizing the chance of payoff, the safe bet (H) would be favored over the longshot (L) and the pricing would also favor the safe bet (Ch) over the longshot (Cl) (i.e. Ch > Cl). Yet when any amount of money (X) is offered at a %100 probability, that option would be selected over both H and L. That is for Ch > X > Cl, X is preferred over H and X is preferred over L, leading to Ch > X > H, an overpricing of H. Subjects would accept less money than their given value of Ch, or even of Cl as long as that money was guaranteed. In the opposite situation where the potential payoff is the critical factor, L would be favored over H and Cl > Ch. But here, the buyout X would never be accepted beca

Some common words found in the essay are:
Slovic Kahneman, , Ch Cl, Cl Ch, preference reversal, critical factor, pricing condition, ch >, choice pricing, ch > >, > >, chance payoff, amount money, safe bet, maximizing chance payoff, potential payoff,

Approximate Word count = 546
Approximate Pages = 2 (250 words per page double spaced)

Category: Miscellaneous

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Preference Reversal and Expertise

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