Testing Explanations of Preference Reversal

We present a new experimental investigation of preference reversal. Although economists and psychologists have suggested a variety of accounts for this phenomenon, the existing data do not adequately discriminate between them. Relative to previous studies, our design offers enhanced control for economic explanations and new tests of psychological hypotheses. We find a pattern of preference reversals that is inconsistent with all of the best-known explana-tions of the phenomenon proposed by economists, with the fundamental economic assump-tion of context-free preferences, and with several psychological theories of preference reversal. We explore the explanatory strategies that survive exposure to our data. In conventional economic theory, preferences are taken as primitive. A funda-mental assumption is that preferences are independent of the tasks that an agent faces. We will call this assumption the postulate of context-free preferences. It is crucial for many standard methods of economic analysis and implicit both in traditional models, such as expected utility theory, and in generalisations of them that have recently become prominent in the economics literature.1 However, it is not indisputable. Empirically, one of the most troubling challenges to it is posed b