Date: March 23, 2023

Speaker: Colin Sullivan (Federal Reserve Bank of New York)

Paper Title: Distinguishing Common Ratio Preferences from Common Ratio Effects Using Paired Valuation Tasks

Abstract: Without strong assumptions about how noise manifests in choices, we can infer little about whether there exist underlying common ratio preferences (CRP) given existing empirical observations of the common ratio effect (CRE). To solve this inferential challenge, we propose using paired valuations, which yield valid inference under common assumptions. Using this approach in an online experiment with 900 participants, we find no evidence of a systematic CRP. To reconcile our findings with existing evidence, we present the same participants with paired choice tasks, and demonstrate how noise can generate a CRE even for individuals without an associated CRP.

Bio: Jason Somerville is an Economist at the Federal Reserve Bank of New York. His research focuses on testing and refining economic models through theory-inspired lab experiments. He also studies policy issues raised by behavioral economics in areas such as optimal policy design and demand for redistribution.