Subjective value

Given the choice between two alternatives, a person will tend to select the alternative that they value more highly. However, when you ask them how much they would pay for each alternative, they might assign a lower price to the option that they chose. Why do people change their preferences? Does the subjective value they assign to the option change?

My research suggests that yes – the subjective value that people assign to an option can change depending on whether they are making choices or assigning prices – but it is not in the way you might expect. Usually, we see people assign relatively higher prices to options with large payoffs despite it being risky or having a long delay to receipt while choosing the option with a smaller payoff that is safer or occurs sooner. With this in mind, you might expect that choices would produce more risk-aversion to assign a higher value to the safe option – however, this is the opposite of what we observe. Rather than price-induced risk-seeking, evidence suggests that when assigning prices people are more risk-averse but anchor on the value of the payoff before adjusting for risk or delay.