Preference Reversal: Information-Processing Effect or Rational Non-transitive Choice?

Preference reversal is often explained as an information-processing effect, whereby individuals respond differently to valuation problems than to straight choices. Regret theory offers the alternative explanation that individuals act on consistent, but nontransitive, preferences. Regret theory, in its most general form, is shown to make specific predictions about nontransitive pairwise choices that correspond with the preferences reversal phenomenon. Some experiments designed to discriminate between these two explanations are reported. The main finding is that, as regret theory predicts, the preference reversal phenomenon can be reproduced in situations in which subjects confront only choice problems. Copyright 1989 by Royal Economic Society.