Preference reversal in quantum decision theory

TL;DR

This paper explains preference reversal in decision making through quantum decision theory, showing how attraction factors influence choices and valuations differently, supported by experimental validation.

Contribution

It introduces a quantum decision theory framework with attraction factors to explain preference reversal and provides a quantitative criterion validated by experiments.

Findings

Preference reversal explained by attraction factors in quantum decision theory

Derived a quantitative criterion for preference reversal occurrence

Validated the criterion with experiments by Tversky et al.

Abstract

We consider the psychological effect of preference reversal and show that it finds a natural explanation in the frame of quantum decision theory. When people choose between lotteries with non-negative payoffs, they prefer a more certain lottery because of uncertainty aversion. But when people evaluate lottery prices, e.g. for selling to others the right to play them, they do this more rationally, being less subject to behavioral biases. This difference can be explained by the presence of the attraction factors entering the expression of quantum probabilities. Only the existence of attraction factors can explain why, considering two lotteries with close utility factors, a decision maker prefers one of them when choosing, but evaluates higher the other one when pricing. We derive a general quantitative criterion for the preference reversal to occur that relates the utilities of the two lotteries to the attraction factors under choosing versus pricing and test successfully its application on experiments by Tversky et al. We also show that the planning paradox can be treated as a kind of preference reversal.