Summary: Anomalies, Preference Reversals Introduction Economics as a subject may be differentiated from other social sciences from the fact that the latter assumes in most, if not all, cases people’s actions are analyzed assuming that they have well defined and stable preferences (Tversky and Thaler 201)…
The standard preference demands that a specified amount of money has to be invested by people to save their lives. Depending on the economy, there is the assumption that the procedure of invariance is not unique to the study of preference. Invariance arises when the money is invested monthly or yearly but the money is not fully utilized. When accidents and injuries do not happen, the people who pay monthly feel that their money is being wasted causing some to withdraw payments. Violations of transitivity arise when preference reversal implicates the payoff schemes as means of exploiting cash from desperate clients. Main Findings of the Article Several major findings include first, intransitivity alone accounts for a very small portion of the preference reversal patterns. This means that the subjects are supposed to pay a lesser amount of money in cases where a client does not incur regular accidents. The irregularity where clients experience delayed compensation despite claiming on time. Secondly, preference reversal is hardly affected by the payoff scheme hence not attributed to the failure of expected utility theory. This means that it cannot be used to explain the violations and independency complains from clients. In addition to this, predictions that clients will get accidents cause them to pay. ...
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