What is Preference Reversal

The behavioral agency theory explains that preferences have not always been stable over time and might change with the framing of the problem. A concept largely used in behavioral economics has been recently adopted in family firms' literature: preference reversal. Preference reversal explains that in the presence of vulnerability, family firms are willing to change their most critical point of reference, socioemotional wealth, and that they are willing to focus on financial wealth. This chapter introduces the concept of preference reversal, explains the application of preference reversal in family firms, and makes an empirical exploration of the presence of preference reversal. The study explores one of the cases of firm vulnerability: a low financial performance by applying neural networks. The study applies to Mexican family firms and finds indications of preference reversal.