Review of Behavioral Economics > Vol 10 > Issue 2

The Effects of Expected Value and Episodic Memory on Preference Reversals

Yong Lu, Cardinal Stefan Wyszyński University in Warsaw, Poland, luyong@student.uksw.edu.pl , Marek Nieznański, Cardinal Stefan Wyszyński University in Warsaw, Poland, Michał Obidziński, Cardinal Stefan Wyszyński University in Warsaw, Poland
 
Suggested Citation
Yong Lu, Marek Nieznański and Michał Obidziński (2023), "The Effects of Expected Value and Episodic Memory on Preference Reversals", Review of Behavioral Economics: Vol. 10: No. 2, pp 105-161. http://dx.doi.org/10.1561/105.00000165

Publication Date: 07 Jun 2023
© 2023 Y. Lu, M. Nieznański and M. Obidziński
 
Subjects
Biased estimation,  Hypothesis testing,  Behavioral economics,  Experimental economics,  Behavioral decision making,  Choice modeling,  Individual decision making,  Marketing decisions models,  Marketing information systems,  Strategic decision-making
 
Keywords
JEL Codes: A10, A12, C90, C91, D47, D81, M31
Preference reversalrisk preferenceepisodic memoryexpected value differenceattraction effect
 

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In this article:
1. Introduction 
2. Hypotheses 
3. Overview of the Experiments 
4. Experiment 1 
5. Experiment 2 
6. General Discussion 
7. Summary, Limitations, and Future Directions 
8. Conclusion 
References 

Abstract

Preference reversal (PR) reveals that preferences over risky bets can be reversed between choices and willingness-to-accept or -pay. To date, neither has literature in gambling situations paid attention to whether the expected value difference between bet pairs affects the likelihood of PR, almost nor has empirical research shed light on whether episodic memory is involved in PR. In a laboratorybased study, Experiment 1 varied bet pairs in expected value in a market-like scenario. Undergraduates (N = 64) first completed classic dual-procedure choice and price tasks and then performed a memory test for previous choices. Consistent with past work, participants exhibited non-negligible rates of PR between choices and valuations. The results suggest a tendency that the larger the expected value difference between bet pairs, the larger the predicted PR rate, and provide the first evidence that correct retrievals of initial choices can ameliorate PR. In a subsequent Experiment 2, participants (N = 86) were incentivized to complete choice and price tasks and a memory test on purely risky bets in a pictorial form. We found equivocal evidence of the effect of expected value difference within bet pairs on attraction effect PR, no effect of expected value difference or level on correct recollections, and again substantial evidence that correct retrievals of initial choices can ameliorate PR. Overall, these results reaffirm the existence of the traditional and contextual PR phenomenon and provide evidence about how memory retrieval operates as individuals perform binary choice and pricing tasks.

DOI:10.1561/105.00000165