Social foundations of consistent preferences: philosophical and neural learning background, and an experiment on a breakdown. George Etheredge 1 , Glenn Harrison 2 , Andre Hofmeyr 1 , Harold Kincaid 1 , Daniel Munene 1 , Don Ross 1,2 1 – School of Economics, University of Cape Town
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George Etheredge1, Glenn Harrison2, Andre Hofmeyr1, Harold Kincaid1, Daniel Munene1, Don Ross1,2
1 – School of Economics, University of Cape Town
2 – Center for Economic Analysis of Risk, Georgia State University
(1) Preferences don’t exist except from the intentional stance, which relates an agent to a space of ecologically distinguished options; and for humans that space is socially partitioned and scaffolded;
(2) comparative valuations in the brain don’t aggregate onto an economic preference scale.
I’ll say a bit about (2) first.
We measure people’s risk preferences by presenting them with choices between pairs of lotteries that vary systematically in ratios of risk between the members of the pairs. To understand the problem we’re investigating in South Africa, and our methodology for studying it, we must explain the experimental procedure.
Option A is the safe choice and Option B is the risky choice
It is inconsistent, regardless of risk attitude, to switch from choosing Option A to Option B and then back again to Option A.
r < 0 => risk loving
r = 0 => risk neutral
r > 0 => risk averse
switch to B in row 5 => risk neutral
switch to B after row 5 => risk averse
If we use a mixture specification that allows us to estimate a distribution of different utility functions in a given population, we can find relatively stable r-values for the overwhelming majority of subjects. This includes populations sampled in rich countries and poor ones, across all levels of education, literacy and “numeracy”.
For a preliminary view of the data, we carried out 2 probit regressions with