It is an article for my experimental economy class to summary - Essay Example

Summary: Anomalies, Preference Reversals Introduction Economics as a may be differentiated from other social sciences from the fact that thelatter 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). It is further assumed that the agents make rational decisions that are at par with market preferences and that these preferences finally clear up. There are three alternative interpretations of preference reversals.

These alternatives normally arise from violations of transitivity, independency and procedure of invariance. 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. However, the predictions do not come to fulfillment resulting in client dissatisfactions. Thirdly, the major cause of preference reversal is the failure of procedure invariance. Failure of procedure invariance happens when there is overpricing and underpaying of clientele.

The compatibility hypothesis explains the major source of preference reversal that mainly concentrates on overpricing and underpayment. In more instances than one, there have been cases where clients are charged hefty monthly charges for damages that have not occurred while other clients are underpaid when damages occur. Brief Description of an Intriguing Idea Independency theory is one major idea that is intriguing. Independency theory is based on individuals and the cash they have. Human beings are not compatible and differ in more ways than one.

In some instances, there are compatibility patterns depending on the economy. The discussion of the meaning of preference and independency varies. Apparently, independency depends on the choice of an individual. Different people act according to their preferences. Clients have the freedom to choose which companies to invest in. They weigh their options in order to respond accordingly. Invariance does not influence independency. This is because exploitation of clients is limited as most choose not to pay should there arise a case of exhortation.

Preferences are constructed while in the process of making choices and judgments. This is due to the fact that people do not posses a set of pre-defined preferences for every contingency. Consequently, the behavior in people will change depending on the situations they face and identify with. Independency will be influenced by the economy. On one hand, in a thriving economy, people are able to make payments on time and at their free will while on the other hand, people usually strain themselves to make payments on time.

One question that needs to be answered is that: What are the effects of reverse preferences on decision making? Works Cited Tversky Amos and Thaler Richard. “Anomalies, Preference Reversals”. Journal of Economic Perspectives, Vol 4, Issue 2. pp201-2011. 2001.