Why contextual preference reversals maximize expected value

Research output: Contribution to journalArticle

Authors

  • Andrew Howes
  • Paul A. Warren
  • George D. Farmer
  • Wael El-Deredy
  • Richard L. Lewis

Colleges, School and Institutes

External organisations

  • University of Manchester
  • Department of Psychology; University of Michigan

Abstract

Contextual preference reversals occur when a preference for one option over another is reversed by the addition of further options. It has been argued that the occurrence of preference reversals in human behavior shows that people violate the axioms of rational choice and that people are not, therefore, expected value maximizers. In contrast, we demonstrate that if a person is only able to make noisy calculations of expected value and noisy observations of the ordinal relations among option features, then the expected value maximizing choice is influenced by the addition of new options and does give rise to apparent preference reversals. We explore the implications of expected value maximizing choice, conditioned on noisy observations, for a range of contextual preference reversal types—including attraction, compromise, similarity, and phantom effects. These preference reversal types have played a key role in the development of models of human choice. We conclude that experiments demonstrating contextual preference reversals are not evidence for irrationality. They are, however, a consequence of expected value maximization given noisy observations. (PsycINFO Database Record (c) 2016 APA, all rights reserved)

Details

Original languageEnglish
Pages (from-to)368-391
JournalPsychological Review
Volume123
Issue number4
Publication statusPublished - Jul 2016

Keywords

  • expected value maximization, preference reversals, rationality, choice