Expected utility theory with imprecise probability perception: explaining preference reversals

Oben Bayrak, John Denis Hey

Research output: Contribution to journalArticlepeer-review


This article presents a new model for decision-making under risk, which provides an explanation for empirically-observed preference reversals. Central to the theory is the incorporation of probability perception imprecision, which arises because of individuals’ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha EU model and construct a simple model which helps us to understand anomalies, such as preference reversals and valuation gaps, discovered in the experimental economics literature, that standard models cannot explain.
Original languageEnglish
Pages (from-to)906-910
JournalApplied Economics Letters
Issue number13
Early online date30 Sept 2016
Publication statusPublished - 2017

Bibliographical note

© 2016, Informa UK Limited, trading as Taylor & Francis Group. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details.


  • alpha EU model
  • anomalies in expected utility theory
  • decision under risk
  • imprecise probability perceptions
  • preference reversals
  • valuation gaps

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