Preference Reversal in Quantum Decision Theory

Frontiers in Psychology, Vol. 6, p. 01538, 2015

15 Pages Posted: 10 Oct 2015

See all articles by Vyacheslav I. Yukalov

Vyacheslav I. Yukalov

Joint Institute for Nuclear Research; D-MTEC, ETH Zurich

Didier Sornette

Risks-X, Southern University of Science and Technology (SUSTech); Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Tokyo Institute of Technology

Date Written: October 9, 2015

Abstract

We consider the psychological effect of preference reversal and show that it finds a natural explanation in the frame of quantum decision theory. When people choose between lotteries with non-negative payoffs, they prefer a more certain lottery because of uncertainty aversion. But when people evaluate lottery prices, e.g. for selling to others the right to play them, they do this more rationally, being less subject to behavioral biases. This difference can be explained by the presence of the attraction factors entering the expression of quantum probabilities. Only the existence of attraction factors can explain why, considering two lotteries with close utility factors, a decision maker prefers one of them when choosing, but evaluates higher the other one when pricing. We derive a general quantitative criterion for the preference reversal to occur that relates the utilities of the two lotteries to the attraction factors under choosing versus pricing and test successfully its application on experiments by Tversky et al. We also show that the planning paradox can be treated as a kind of preference reversal.

Suggested Citation

Yukalov, Vyacheslav I. and Sornette, Didier, Preference Reversal in Quantum Decision Theory (October 9, 2015). Frontiers in Psychology, Vol. 6, p. 01538, 2015, Available at SSRN: https://ssrn.com/abstract=2671794

Vyacheslav I. Yukalov (Contact Author)

Joint Institute for Nuclear Research ( email )

Bogolubov Laboratory of Theoretical Physics
Dubna, 141980
Russia

D-MTEC, ETH Zurich ( email )

Zurich
Switzerland

Didier Sornette

Risks-X, Southern University of Science and Technology (SUSTech) ( email )

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

Swiss Finance Institute ( email )

c/o University of Geneva
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Switzerland

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

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Zurich, ZURICH CH-8092
Switzerland
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Tokyo Institute of Technology ( email )

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Tokyo 152-8550, 52-8552
Japan

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