On preference imprecision

Cubitt, Robin P.; Navarro-Martínez, Daniel; Starmer, Chris

doi:10.1007/s11166-015-9207-6

Cited by 48 publications

(50 citation statements)

References 43 publications

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“…More recently, Cubitt et al . () elicited certainty equivalents and associated imprecision intervals using lists that were rather more fine‐grained than those in Cohen et al . () and they found imprecision to be pervasive, with an average of 87% of respondents identifying at least some interval.…”

Section: The Choice List Proceduresmentioning

confidence: 99%

Measuring Individual Risk Attitudes when Preferences are Imprecise

Loomes

Pogrebna

2014

Econ J

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The Service Systems research group at WMG works in collaboration with large organisations such as GlaxoSmithKline, Rolls-Royce, BAE Systems, IBM, Ministry of Defence as well as with SMEs researching into value constellations, new business models and value-creating service systems of people, product, service and technology.The group conducts research that is capable of solving real problems in practice (ie. how and what do do), while also understanding theoretical abstractions from research (ie. why) so that the knowledge results in high-level publications necessary for its transfer across sector and industry. This approach ensures that the knowledge we create is relevant, impactful and grounded in research.In particular, we pursue the knowledge of service systems for value co-creation that is replicable, scalable and transferable so that we can address some of the most difficult challenges faced by businesses, markets and society. Research StreamsThe WMG Service Systems research group conducts research that is capable of solving real problems in practice, and also to create theoretical abstractions from or research that is relevant and applicable across sector and industry, so that the impact of our research is substantial.The group currently conducts research under six broad themes: (Australia) as well as at the 42 nd Australian Conference of Economists in Perth (Australia) for many insightful comments. Finally, the authors very much appreciate the efforts of referees and an editor, which have greatly improved the final version of this paper. 4 Measuring Individual Risk Attitudes when Preferences are Imprecise By Graham Loomes and Ganna Pogrebna AbstractThere is widespread interest in measuring risk attitudes and incorporating such measures into broader econometric analyses. We consider three elicitation procedures currently in use. We find considerable variability within -and even more, between -the results they produce. We suggest that this reflects the way that different instruments interact with imprecise underlying preferences. The short run implication is that such procedures need to be used with caution and are likely to be highly context-specific. The longer run implication is that adding 'white noise' to deterministic models is inadequate: we need to develop models that allow for imprecision and procedural variation.

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Section: The Choice List Proceduresmentioning

confidence: 99%

Measuring Individual Risk Attitudes when Preferences are Imprecise

Loomes

Pogrebna

2014

Econ J

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“…shows the WTP question used in the study. The range of values from $0 to $75 was chosen based on the range of results from a pilot study, and a “not sure” column was included to allow respondents to express uncertainty about their WTP . For each question, respondents indicated their maximum “sure” WTP (the upper limit from the “yes” column) and maximum “not sure” WTP (the upper limit from the “not sure” column).…”

Section: Methodsmentioning

confidence: 99%

Assessing the Cost of Large‐Scale Power Outages to Residential Customers

Davis

Morgan

2017

Risk Analysis

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Residents in developed economies depend heavily on electric services. While distributed resources and a variety of new smart technologies can increase the reliability of that service, adopting them involves costs, necessitating tradeoffs between cost and reliability. An important input to making such tradeoffs is an estimate of the value customers place on reliable electric services. We develop an elicitation framework that helps individuals think systematically about the value they attach to reliable electric service. Our approach employs a detailed and realistic blackout scenario, full or partial (20 A) backup service, questions about willingness to pay (WTP) using a multiple bounded discrete choice method, information regarding inconveniences and economic losses, and checks for bias and consistency. We applied this method to a convenience sample of residents in Allegheny County, Pennsylvania, finding that respondents valued a kWh for backup services they assessed to be high priority more than services that were seen as low priority ($0.75/kWh vs. $0.51/kWh). As more information about the consequences of a blackout was provided, this difference increased ($1.2/kWh vs. $0.35/kWh), and respondents' uncertainty about the backup services decreased (Full: $11 to $9.0, Partial: $13 to $11). There was no evidence that the respondents were anchored by their previous WTP statements, but they demonstrated only weak scope sensitivity. In sum, the consumer surplus associated with providing a partial electric backup service during a blackout may justify the costs of such service, but measurement of that surplus depends on the public having accurate information about blackouts and their consequences.

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“…Their findings support that there is a positive relation between the variance of the lottery and individuals' subjective valuation range. Most recently, Cubitt et al (2015) provides a more comprehensive treatment of the imprecision issue: their data includes responses for 33 different lotteries which are organized in seven sequences each including 5 lotteries. Lotteries in sequence 1 have equal variances whereas in sequence 2 they do not.…”

Section: Imprecisionmentioning

confidence: 99%

“…Experimental studies in this new strand of literature suggest that even intelligent and numerate individuals find it hard to know their own preferences precisely and are not able to state their choices and subjective valuations for goods and risky prospects with perfect confidence (See Bayrak & Kriström, 2016;Butler & Loomes, 1988, 2011, 2007Cohen, Jaffray, & Said, 1987;Cubitt, Navarro-Martinez, & Starmer, 2015;Morrison, 1998). Although alternative theories model individual behavior in a nonstandard way to explain these observed anomalies, they share a common implicit assumption with EUT that individuals can articulate their subjective valuations for goods and make choices in a precise manner.…”

Section: Introductionmentioning

confidence: 99%

“…This paper focuses on the stable part and introduces a deterministic core model which explains how imprecision is formed and a particular expected utility is drawn from the imprecision range. To develop such a model, I pay attention to the recent experimental findings and particularly about the determinants of imprecision: The experimental evidence provided by Butler and Loomes (1988) and Cubitt et al (2015) suggest that the higher the variance of a lottery, the broader the imprecision range for a lottery. Taking these into account I assume that the imprecision range is proportionate to dispersion.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism

Bayrak

2016

SSRN Journal

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Although there are alternative models which can explain the Allais paradox with non-standard preferences, they do not take the emerging evidence on preference imprecision into account. The imprecision is so far incorporated into these models by adding a stochastic specification implying the errors that subjects make. However, there is also the inherent part of the preference imprecision which does not diminish with experience provided in repeated experiments and these stochastic specifications cannot explain a significant portion of the observed behavior in experiments. Moreover, evidence on imprecision suggests that subjects exhibit higher imprecision for a lottery with a higher variance. This paper presents a new model for decision under risk which takes into account the findings of the literature. Looking at the indifference curves predicted by the new model, the new model acts like a mixture of Expected Utility Theory and Rank Dependent Utility Theory depending on which part of the probability triangle the lottery is located.

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On preference imprecision

Cited by 48 publications

References 43 publications

Measuring Individual Risk Attitudes when Preferences are Imprecise

Measuring Individual Risk Attitudes when Preferences are Imprecise

Assessing the Cost of Large‐Scale Power Outages to Residential Customers

Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism

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