REVERSAL OF THE PREFERENCE REVERSAL PHENOMENON

The widely replicated preference reversal phenomenon (PRP) violates most theories of decision under risk. People exhibiting PRP choose a safe bet (with a large chance of a small gain) over a long shot (with a small chance of a larger gain). But, when bidding to buy or sell each bet, they bid more for the long shot. Surprisingly, in Experiment 1, a new opposite reversal pattern (NPRP) was found: Safe bets typically received larger bids than long shots and reversals were far more frequent when the long shot was chosen. In Experiment 2, NPRP was found for $100 expected value bets, but PRP occurred for bets with $3 expected values. The task characteristics apparently necessary to produce NPRP are (1) bids in the form of maximum buying prices, (2) possibility of loss in bidding, but not in choice, and (3) large payoffs. It is argued that wealth effects predicted by expected utility theory are too small to explain NPRP. Instead, it is hypothesized that a contingent decision process underlies the shift in reveral patterns and that aspiration levels exert increased influence in bidding to buy when payoffs are large. © 1991.