Options as information: rational reversals of evaluation and preference

Area of Science:

• Decision-making research
• Cognitive psychology
• Behavioral economics

Background:

• Joint-separate reversals are a class of apparent preference reversals.
• Traditional explanations rely on the evaluability hypothesis.
• Misconceptions exist regarding the rationality of these effects.

Purpose of the Study:

• To develop a rational analysis of joint-separate reversals.
• To propose and test the "options-as-information" model.
• To clarify the nature and conditions of preference reversals.

Main Methods:

• Development of a normative "options-as-information" model.
• The model involves a two-stage process: belief updating and option assessment.
• Empirical testing through three experiments with human participants.

Main Results:

• The model explains joint-separate reversals as a consequence of limited market knowledge and inferential processes.
• It identifies boundary conditions for the evaluability hypothesis.
• Experimental results show a strong fit between the rational actor model and human judgments.

Conclusions:

• Joint-separate reversals are not irrational and are not true preference reversals.
• The "options-as-information" model provides a rational account for these phenomena.
• Genuine preference reversals may emerge in expanded experimental designs.