Misconceptions and Game Form Recognition of the BDM Method: Challenges to Theories of Revealed Preference and Framing

This study explores the tension between the standard economic theory of preference and non-standard theories of preference that are motivated by an underlying theory of framing. A simple experiment was performed to measure a known preference, the value of a card that can be exchanged for $2 cash. The measurement does not produce the known preference and instead reports a preference that has properties often cited in support of non-standard preference theories and framing. Close examination reveals that the divergence of the measured preference from the known preference reflects a mistake, arising from some subjects' misconception of the game form. We conclude that choice data should not be granted an unqualified interpretation of preference revelation. Mistakes in choices obscured by a possible error at the foundations of the theory of framing, can masquerade as having been produced by non-standard preferences. ; Original Sept. 2012; Revised Nov. 2013 For helpful comments we thank three anonymous referees, Peter Bossaerts, Gary Charness, James Cox, Vincent Crawford, Dirk Englemann, David Grether, Ori Heffetz, David Levine, Vai-Lam Mui, Rosemarie Nagel, Anmol Ratan, Aldo Rustichini, Matthew Shum, Charles Sprenger, Kathryn Zeiler, and presentation audiences at UC Santa Barbara, USC, Purdue, Stanford, Monash, and ESA and SAET conferences. We retain responsibility for our interpretation and for any mistakes or misconceptions. ; Published - sswp1364_-_revised.pdf Published - sswp1364.pdf