Preference reversal
Instructions
Please choose between:
A: Obtaining 240
Euro with certainty (expected value 240 Euro)
B: A chance of winning
1000 Euro with probability 0.25 (expected value 250 Euro)
Please choose between:
C: Losing 750 Euro
with certainty (expected loss 750 Euro)
D: A chance of losing
1000 Euro with probability 0.75 (expected loss 750 Euro).
Evaluations
Number of players: 21
Frequency of different decisions:
A: 240 Euro with certainty B:
1000 Euro with probability 0.25
C: lose 750 Euro with certainty
D: lose 1000 Euro with probability 0.75
Comments
In large scale experiments, 84% prefer A: a sure gain of 240 Euros in step 1,
and 87% prefer D: 75 percent chance to lose 1000 euros in step 2. But if people are
offered to chose between a sure gain of 240 Euros and a 75% chance to lose 1000
Euros, on the one hand, and a 25% to gain 1000 Euros and a sure loss of 750 Euros
on the other, all chose the second option:
-
25% chance to win 240 Euros and 75% to lose 760 Euros.
- 25% chance to win 250 Euros and 75% to lose 750 Euros.
Written by Christoph Hauert