Slovic, P., & Lichtenstein, S. (1982). Preference Reversals: A Broader Perspective. Decision Research: Vol. 73 No. 24, 582 - 605.
Tversky, A., & Kahneman, D. (January 30, 1981). The Framing of Decisions and the Psychology of Choice. Science, New Series, Vol. 211, No. 4481. , 453 - 458.
In social sciences, the rationality of human decisions and choices are said to be guided by rationality. Rationality, defined as the exercise of reason, is still very a much debated topic. Experts however believe that rationality should be coherent and consistent, across circumstances that humans face. This research focuses on the fact that participants have violated both principles of consistency and coherence when confounded with decisions that were framed for or against their inherent perceptions and preferences. According to this study, the principles that generally govern how problems are evaluated and decided on and the range of possible actions (outcomes) predictably change depending on the way the issue is “framed” and on the “preference” of the person. Using “monetary outcomes” and “loss of life” as a way to gauge the changes between possible choices, preferences were found to be reversed when problems and solutions were framed from one (monetary outcome) to the other (loss of life). The researchers used seemingly inconsequential changes in the way a question is asked and from the respondent’s answers, statistical results were summarized and interpreted. For example, the question of whether wanting to watch a ballgame wherein a US$ 10 fee is charged garnered different responses when the questions are framed differently, for example, whether the respondent will pay another US$ 10 for a lost ticket or would pay US$ 10 for a ticket upon already losing US$ 10 prior to buying the said ticket. The researchers found that this result is consistent with the demonstrated effects of “perspectives” on perceptual appearances. The researchers conclude that the theory of rational choice is very dependent on how decision problems are formulated or framed and the preferences inherent to the decision maker.
Slovic, P., & Lichtenstein, S. (1982). Preference Reversals: A Broader Perspective. Decision Research: Vol. 73 No. 24, 582 - 605.
This paper focused on the published work by Werner Prommerhene, Feidrich Schenider, and Peter Zweifel in 1982 and by Robert Reilly also in 1982 regarding the principle of preference reversal. According to both studies, a reversal of preference happens when a person is faced with two gambles. The first gamble is the probability of winning a modest amount of money while the second is the probability of winning a large amount of money. The first gamble has a high probability of happening while the second has a low probability. Ordinarily, a person who is faced with these choices would put a higher value on the first gamble but would assign a high monetary valuation on the second gamble. This is a violation of utility theory because in utility theory, a person will choose that which gives him or her highest satisfaction, in this case, more money, rather than less. In other words, a person ought to choose the second gamble over the first.
The article concludes by providing insights and suggestions on how best to align the existing econometric theories of utility with that of preference reversals. One way of doing so, according to the researchers, is to provide some changes to the existing theory of utility to account for the anomalies that occur as preferences are factored in when examining rationale choices. Another is to utilize information processing as part of existing economic theology and utilize its presence in understanding decision making and preference reversals.
Works Cited
Slovic, P., & Lichtenstein, S. (1982). Preference Reversals: A Broader Perspective. Decision Research: Vol. 73 No. 24, 582 - 605.
Tversky, A., & Kahneman, D. (January 30, 1981). The Framing of Decisions and the Psychology of Choice. Science, New Series, Vol. 211, No. 4481. , 453 - 458.
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