Distinguishing Common Ratio Preferences from Common Ratio Effects Using Paired Valuation Tasks

S-Tier
Journal: American Economic Review
Year: 2024
Volume: 114
Issue: 2
Pages: 307-47

Authors (5)

Christina McGranaghan (not in RePEc) Kirby Nielsen (not in RePEc) Ted O'Donoghue (Cornell University) Jason Somerville (not in RePEc) Charles D. Sprenger (not in RePEc)

Score contribution per author:

1.609 = (α=2.01 / 5 authors) × 4.0x S-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Without strong assumptions about how noise manifests in choices, we can infer little from existing empirical observations of the common ratio effect (CRE) about whether there exists an underlying common ratio preference (CRP). We propose to solve this inferential challenge using paired valuations, which yield valid inference under common assumptions. Using this approach in an online experiment with 900 participants, we find no evidence of a systematic CRP. To reconcile our findings with existing evidence, we present the same participants with paired choice tasks and demonstrate how noise can generate a CRE even for individuals without an associated CRP.

Technical Details

RePEc Handle
repec:aea:aecrev:v:114:y:2024:i:2:p:307-47
Journal Field
General
Author Count
5
Added to Database
2026-01-26