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Journal article
Individual valuation, market valuation, and the preference reversal phenomenon
Journal of behavioral economics, Vol.18(2), pp.99-114
1989
Abstract
This article reports experiments dealing with individual subject valuation and preference over prospect pairs that are known to generate systematic intransitivities in choice behavior termed “preference reversals”. The authors examine whether alternative procedures to those previously employed for eliciting individual limit selling prices over prospects alters the incidence or dollar magnitude of preference reversals. It is found that when individual limit selling prices over prospects are elicited in a repetitive, second-price sealed Vickrey (1961) auction market framework, rather than under the traditional single response Becker, DeGroot, and Marshak (1964) procedure, that the dollar magnitude of preference reversals declines significantly. Initially, when opening Vickrey auction limit selling prices are combined with individual subject choices over prospects, previous results like those of Grether and Plott (1979) are obtained. When ending Vickrey auction limit selling prices are combined with individual subject choices over prospects, the dollar magnitude of reversals declines significantly. These results imply that markets can be efficient and yield market clearing prices under a given arrangement of property rights even if the behavior of some individuals is inconsistent with expected utility theory.
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Details
- Title
- Individual valuation, market valuation, and the preference reversal phenomenon
- Publication Details
- Journal of behavioral economics, Vol.18(2), pp.99-114
- Resource Type
- Journal article
- Publisher
- Elsevier B.V
- Copyright
- © 1989 Published by Elsevier B.V.
- Identifiers
- 99380171994306600
- Academic Unit
- Commerce; Lewis Bear Jr. College of Business
- Language
- English