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Modeling preference reversals between intertemporal choice and pricing

Authors
Peter Kvam
University of Florida ~ Department of Psychology
Ms. Konstantina Sokratous
University of Florida ~ Department of Psychology
Abstract

Preference reversals in risky choice -- where people select low-risk over high-risk prospects in binary choice but assign higher prices to high-risk than low-risk prospects -- have suggested that the valuation processes underlying pricing are distinct from those underlying choice. Despite this, theories of intertemporal choice typically do not distinguish between response processes for pricing and choice, assuming instead that eliciting either response will lead to the same inferences about people’s preferences for delayed outcomes. We show that this assumption is incorrect, and develop a dynamic model of pricing that can account for preference reversals in intertemporal choice. Across two studies, participants showed a preference for smaller sooner options in choice but larger later ones when pricing potential gains (Experiment 1) and losses. This reversal in pricing results in less impulsive behavior, suggesting that pricing frames may reduce choice impulsivity. To explain these diverging price and choice findings in a common framework, we propose a variant of a dynamic price accumulation model that we previously developed to model risky choice. This model is able to predict preference reversals using a common set of parameters for choice and pricing (joint model), providing an account of both response types while extending its account of preference reversals to delayed outcomes.

Tags

Keywords

pricing
evidence accumulation
preference reversal
intertemporal choice
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Cite this as:

Kvam, P., & Sokratous, K. (2021, July). Modeling preference reversals between intertemporal choice and pricing. Paper presented at Virtual MathPsych/ICCM 2021. Via mathpsych.org/presentation/538.