Inconsistency in Risk Preferences: A Psychophysical Anomaly

Inconsistency in Risk Preferences: A Psychophysical Anomaly

There is a fundamental problem with the conceptualization of the individual agent in economics and public policy. At the heart of both domains is the notion that people should be able to make stable tradeoffs between different goods and quantities. For example, people might have to choose between the benefit gained investing money in a pension fund or in joining a gym to improve their health; o...

Explaining Heterogeneity in Risk Preferences Using a Finite Mixture Model

This paper studies the effect of the space (distance) between lotteries' outcomes on risk-taking behavior and the shape of estimated utility and probability weighting functions. Previously investigated experimental data shows a significant space effect in the gain domain. As compared to low spaced lotteries, high spaced lotteries are associated with higher risk aversion for high probabilities o...

When Fair Isn’t Fair: Sophisticated Time Inconsistency in Social Preferences∗

How do people think about fairness in settings with uncertainty? One view holds that fairness requires equality of opportunity; another holds that it requires equality of outcomes. Relative to the resolution of uncertainty, the first view takes an ex ante perspective, while the second takes an ex post perspective. In this paper, we conduct a laboratory experiment designed to determine which per...

Behavioral variability of choices versus structural inconsistency of preferences.

Theories of rational choice often make the structural consistency assumption that every decision maker's binary strict preference among choice alternatives forms a strict weak order. Likewise, the very concept of a utility function over lotteries in normative, prescriptive, and descriptive theory is mathematically equivalent to strict weak order preferences over those lotteries, while intransit...

On inconsistency of a pairwise comparison matrix