Preference reversals and probabilistic decisions



Preference reversals occur when different (but formally equivalent) elicitation methods reveal conflicting preferences over two alternatives. This paper shows that when people have fuzzy preferences, i.e. when they decide in a probabilistic manner, their observed decisions can generate systematic preference reversals. A simple model of probabilistic choice and valuation can account for a higher incidence of standard (nonstandard) preference reversals for certainty (probability) equivalents and it can also rationalize the existence of strong reversals. An important methodological contribution of the paper is a new definition of a probabilistic certainty/probability equivalent of a risky lottery.


Preference reversal Probabilistic choice Probabilistic valuation Certainty equivalent Probability equivalent 

JEL Classification

D01 D80 D81 C91 


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Institute of Public Finance, University of InnsbruckInnsbruckAustria

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