Preference Cloud Theory: Imprecise Preferences and Preference Reversals

Bayrak, Oben and Hey, John (2015): Preference Cloud Theory: Imprecise Preferences and Preference Reversals.

Abstract

This paper presents a new theory, called Preference Cloud Theory, of decision-making under uncertainty. This new theory provides an explanation for empirically-observed Preference reversals. Central to the theory is the incorporation of preference imprecision which arises because of individuals’ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha model (which builds on Hurwicz’s criterion) and construct a simple model which helps us to understand various anomalies discovered in the experimental economics literature that standard models cannot explain.

• Item Type: MPRA Paper
• Language: English
• Keywords: Imprecise Preferences; Preference Reversals; Decision under Uncertainty; Anomalies in Expected Utility Theory
• Subjects: D - Microeconomics > D0 - General; D - Microeconomics > D0 - General > D00 - General; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D0 - General > D04 - Microeconomic Policy: Formulation, Implementation, and Evaluation; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty

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