Attention and salience in preference reversals

We investigate the implications of Salience Theory for the classical preference reversal phenomenon, where monetary valuations contradict risky choices. It has been stated that one factor behind reversals is that monetary valuations of lotteries are inflated when elicited in isolation, and that they should be reduced if an alternative lottery is present and draws attention. We conducted two preregistered experiments, an online choice study ($$N=256$$ N = 256 ) and an eye-tracking study ($$N=64$$ N = 64 ), in which we investigated salience and attention in preference reversals, manipulating salience through the presence or absence of an alternative lottery during evaluations. We find that the alternative lottery draws attention, and that fixations on that lottery influence the evaluation of the target lottery as predicted by Salience Theory. The effect, however, is of a modest magnitude and fails to translate into an effect on preference reversal rates in either experiment. We also use transitions (eye movements) across outcomes of different lotteries to study attention on the states of the world underlying Salience Theory, but we find no evidence that larger salience results in more transitions.

EXPRESS: Preference Reversals Between Digital and Physical Goods

The proliferation of digital goods has led to an increased interest in how the digitization of products and services affects consumer behavior. In this paper, the authors show that although consumers are willing to pay more for physical than digital goods, this difference attenuates—and even reverses—when consumers are asked to make a choice between the two product formats. This effect is explained by a contingent weighting principle: In willingness to pay, a quantitative task, consumers anchor on quantitative information (e.g., market beliefs). On the other hand, in choice, a qualitative task, consumers anchor on qualitative information (e.g., which good dominates on the most important attribute). These differences in contingent weighting result in physical goods being preferred in willingness to pay, but their digital equivalent being preferred relatively more in choice. The authors draw conclusions from ten pre-registered experiments and six supplemental studies using a variety of goods in hypothetical and incentive-compatible contexts, as well as within- and between-subjects designs. The paper concludes with a discussion of implications for the marketing of digital goods.

Intertemporal preference reversals are associated with early activation of insula and sustained preferential processing of immediate rewards in visual cortex

Decision makers tend to give magnified significance to immediately available rewards which leads to intertemporal preference reversals, which is a form of self-control failure. The objective of the present study was to understand the cognitive and neural underpinnings of this phenomenon using event-related potentials (ERP) and their source localization using standardized low-resolution brain electromagnetic tomography analysis (sLORETA). Twenty-four participants performed a money choice task, where they made choices between a smaller-sooner and a larger-later reward, which included trials with and without an immediately available option, while their electroencephalography (EEG) activity was recorded. Trials with and without immediacy were identical except that the latter involved a front-end delay added to both the rewards. Results showed that presence of immediacy made the choices significantly more impulsive. Presence of immediate reward elicited larger visual P2 and late positive potential (LPP), indicating enhanced capture of automatic and sustained attention respectively, and smaller N2, indicative of diminished engagement of cognitive control processes. Source localization revealed increased activity in the visual cortex in the presence of immediacy, signifying higher valuation. Higher activation of areas of insula during P2—suggesting increased awareness of visceral signals—predicted larger impulsive preference reversals. The results suggest that presence of immediate reward biases the choice very early during the decision making process by precipitating visceral states that triggers approach behaviour, and highlight the need to adopt strategies like precommitment to counter the effect.

Probability weighting explains Independence Axiom violations of Expected Utility Theory in monkeys

Expected Utility Theory (EUT) provides axioms for maximizing utility in risky choice. The independence axiom (IA) is its most demanding axiom: preferences between two options should not change when altering both options equally by mixing them with a common gamble. We tested common consequence (CC) and common ratio (CR) violations of the IA in thousands of stochastic choice over several months using a large variety of binary option sets. Three monkeys showed few outright Preference Reversals (8%) but substantial graded Preference Changes (46%) between the initial preferred gamble and the corresponding altered gamble. Linear Discriminant Analysis (LDA) indicated that gamble probabilities predicted most Preference Changes in CC (72%) and CR (87%) tests. The Akaike Information Criterion indicated that probability weighting within Cumulative Prospect Theory (CPT) explained choices better than models using Expected Value (EV) or EUT. Fitting by utility and probability weighting functions of CPT resulted in nonlinear and non-parallel indifference curves (IC) in the Marschak-Machina triangle and suggested IA non-compliance of models using EV or EUT. Indeed, CPT models predicted Preference Changes better than EV and EUT models. Indifference points in out-of-sample tests were closer to CPT-estimated ICs than EV and EUT ICs. Finally, while the few outright Preference Reversals may reflect the long experience of our monkeys, their more graded Preference Changes corresponded to those reported for humans. In benefitting from the wide testing possibilities in monkeys, our stringent axiomatic tests contribute critical information about risky decision-making and serves as basis for investigating neuronal decision mechanisms.

Prince: An improved method for measuring incentivized preferences

This paper introduces the Prince incentive system for measuring preferences. Prince combines the tractability of direct matching, allowing for the precise and direct elicitation of indifference values, with the clarity and validity of choice lists. It makes incentive compatibility completely transparent to subjects, avoiding the opaqueness of the Becker-DeGroot-Marschak mechanism. It can be used for adaptive experiments while avoiding any possibility of strategic behavior by subjects. To illustrate Prince’s wide applicability, we investigate preference reversals, the discrepancy between willingness to pay and willingness to accept, and the major components of decision making under uncertainty: utilities, subjective beliefs, and ambiguity attitudes. Prince allows for measuring utility under risk and ambiguity in a tractable and incentive-compatible manner even if expected utility is violated. Our empirical findings support modern behavioral views, e.g., confirming the endowment effect and showing that utility is closer to linear than classically thought. In a comparative study, Prince gives better results than a classical implementation of the random incentive system.

Preference reversals between intertemporal choice and pricing

Preference reversals in risky choice -- where people favor low-risk prospects in binary choice but assign higher prices to high-risk prospects -- have led to models of response processes that differentiate pricing from choice. Theories of intertemporal choice do not distinguish between response processes, assuming instead that eliciting choices or prices will lead to the same inferences about people’s preferences for delayed outcomes. Here, we show that this assumption is incorrect. Participants in a price-choice experiment showed systematic preferences for smaller-sooner (SS) over larger-later (LL) options in binary choice, but reversed this apparent preference by pricing the exact same LL options higher than the SS options. This reversal in pricing results in less impulsive behavior, suggesting that pricing frames may reduce choice impulsivity. To explain these diverging price and choice findings in a common framework, we propose a variant of a pricing model from risky choice that accommodates these effects.