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Word Count: 526
Subjects in gambling tasks that involve both choice and pricing show a pattern of responses known as preference reversal That is although subjects in a choice condition generally will give higher preference ratings to safe high-probabilitylow-payoff bets than to longshot low-probabilityhigh-payoff bets when they are asked in a pricing condition to generate an amount of money that they would accept to avoid the gamble altogether they tend to give higher values for longshots over safer bets Tversky Slovic and Kahneman 1990 demonstrate that among the several possible actions that subjects could be taking to produce this pattern the critical factor appears to be the overpricing of the longshot bets If subjects are actually offered a monetary figure hypothetically by the experimenter to replace the gamble they will accept this figure even though it is lower than the figure that they generated in the pricing condition Tversky et al 1990 further showed that this overpricing is largely due to a phenomena known as scale compatibility which involves certain biases when the response required by the subject is in the same units as the factors influencing the decision Since the payoffs of the bets and the buy-out prices assigned to them are both monetary values this leads people to give greater weight to the payoff value of the bets when asked to price them a situation of compatibility than when asked to choose between them a situation of non-compatibility The development of expertise in avoiding preference reversal then would have to involve the circumvention of the compatibility effect One possible way in which this could occur would involve subjects consistently selecting either payoff or probability as the critical factor in both choice and pricing conditions By adopting a strategy of maximizing the chance of any payoff in both the choice and pricing condition and giving that option the higher rating on both scales preference reversal would be avoided Conversely considering only the greatest potential for gain
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