Identifying nontransitive preferences

Carlos Alós-Ferrer, Ernst Fehr and Michele Garagnani

No 415, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: Transitivity is perhaps the most fundamental choice axiom and, therefore, almost all economic models assume that preferences are transitive. The empirical literature has regularly documented violations of transitivity, but these violations pose little problem as long as they are simply a result of somewhat-noisy decision making and not a reflection of the deterministic part of individuals’ preferences. However, what if transitivity violations reflect individuals’ genuinely nontransitive preferences? And how can we separate nontransitive preferences from noise-generated transitivity violations – a problem that so far appears unresolved? Here we tackle these fundamental questions on the basis of a newly developed, non-parametric method which uses response times and choice frequencies to distinguish genuine preferences from noise. We extend the method to allow for nontransitive choices, enabling us to identify the share of weak stochastic transitivity violations that is due to nontransitive preferences. By applying the method to two different datasets, we document that a sizeable proportion of transitivity violations reflect nontransitive preferences. Specifically, in the two datasets, 19% and 14% of all cycles of alternatives for which preferences are revealed involve genuinely nontransitive preferences. These violations cannot be accounted for by any noise or utility specification within the universe of random utility models.

Keywords: Transitivity; stochastic choice; preference revelation; predicting choices (search for similar items in EconPapers)
JEL-codes: D01 D81 D91 (search for similar items in EconPapers)
Date: 2022-07, Revised 2023-01
New Economics Papers: this item is included in nep-dcm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Identifying Nontransitive Preferences (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:415

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