Predictably Intransitive Preferences
49 Pages Posted: 17 Apr 2016 Last revised: 21 May 2016
Date Written: April 11, 2016
The transitivity axiom is common to nearly all descriptive and normative utility theories of choice under risk. Recent experiments claim to show observed intransitive preference cycles are no more than noise. We take issue with this consensus position and its normative defence of transitivity. We draw upon the ‘Steinhaus-Trybula paradox’ as a recipe to bespoke design pairs of lotteries over which preferences might cycle. We run an experiment to look for cycles and transitivity’s implication of expansion/contraction consistency between binary and ternary choice sets. Even after considering possible stochastic but transitive explanations, we find cycles can be the modal preference pattern over these simple lotteries and also find systematic violations of expansion/contraction consistency. We conclude with a defence of these preferences, including a novel argument against the money pump.
JEL Classification: C91, D03, D81
Suggested Citation: Suggested Citation