Preference Reversals of a Different Kind: The “More Is Less” Phenomenon

The theory of riskless choice, as pioneered by Jeremy Bentham and James Mill, characterizes utility maximization as an individual process whereby decision makers' preferences are consistent and stable.If preferences are labile and subject to the whims of circumstance, then no optimization principles may underlie even the most straightforward of choices (David M. Grether and Charles Plott, 1979).While minimal systematic market-based evidence exists to refute the fundamental utilitarian premises in riskless settings, what has been observed in the plethora of studies examining decisions subject to uncertainty contradicts the notion of consistent and well-defined preference orderings.1 Amongst this lot of studies is the oft-cited preference reversal literature: theoretically equivalent measures of preference, such as choices and prices, can lead to systematically different preference orderings (see, e.g., Paul Slovic and Sarah Lichtenstein, 1968).Although preference reversals have been found in a myriad of settings, many economists have been slow to accept their findings, partly because some studies suggest that preference reversals can be eradicated in market settings (Yun-Peng Chu and