Unifying Procedure-Dependent Preference Reversals: Theory and Experiments

Abstract

Revealed preferences between alternatives can be systematically reversed across a variety of elicitation procedures (e.g., choice, valuation, matching, joint/separate evaluation). These puzzling findings have been usually invoked to challenge the procedure invariance principle. Yet procedure-dependent preferences can be endogenous. This paper presents a unifying theory of contextual deliberation to account for seemingly disparate phenomena of preference reversals. When attribute importance is ex ante imperfectly known, people can engage in costly information retrieval/acquisition activities (i.e., deliberation) prior to making decisions. Elicitation procedures can influence revealed preferences through affecting the incentive for deliberation. Therefore, contextual deliberation can endogenously yield procedure-dependent preference reversals, offer a common micro-foundation for extant psychological accounts (e.g., the prominence hypothesis, the evaluability hypothesis), and coherently organize apparently unrelated/inconsistent findings in the literature. We also run five experiments and document new findings that are inconsistent with extant hypotheses but can be reconciled by contextual deliberation.

Keywords: deliberation, evaluation mode, evaluation scale, preference reversal, procedure invariance, prominence effect, joint evaluation

JEL Classification: C91, D01, D11, D83