Description: Micro/Macro Workshop

Location: 368A Heady Hall

Contact Person: Bertan Turhan

Title: Certain Reversals

Abstract: In a lab-in-the-field experiment with experts facing risky, high-stakes decisions, experts exhibit context-dependent reversals in their attitudes towards risk and these reversals are affected by the likelihood of a better outcome, i.e., the direction of preference reversals is affected by the proximity of a better outcome to certainty. Although these patterns cannot be explained by leading models from economics and psychology, they can be explained by a model that combines stochastic reference dependence from economics and context-dependent sensitivity from psychology. The interaction of these two mechanisms may explain the perplexing inconsistencies in people’s choices, including those attributed to probability weighting.