Inconsistency in Consumer Preferences: Some Interesting Insights

Abstract

Traditional theory of preferences assumes that a consumer should be able to rank different alternatives according to the satisfaction or utility they provide. However, empirical findings originated by psychologists in 1970s and later revaluated by economists show some controversial results. A phenomenon that occurs when individual's choice (as a direct indicator of individual's preferences) between two alternatives is inconsistent with the way an individual ranks “selling” price of these alternatives (where price serves as an indirect indicator of his preferences) becomes known as a preference reversals. This research aims to shed a new light on the respective subject by revealing potential differences among individuals’ choice depending on their characteristics. In that manner the research provides an insight into individuals’ preferences depending on their gender and household income. Furthermore, in this experiment individuals were asked to express their attitude toward risk, hence it was considered interesting to confront the way the individuals perceive themselves with the way they actually act.

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