EXPERIMENTAL-EVIDENCE ON THE IRREVERSIBILITY EFFECT

This paper presents the results of an experimental investigation on ho w increased expected information affects subjects' choices. We show th at Claude Henry's (1974) result (the ''Irreversibility Effect'') is st rongly supported by our experimental data. According to the Irreversib ility Effect a rational (expected utility maximizing) agent who antici pates more information before making his future choices, will take a l ess irreversible position today. In our experiment, present and future choices are framed respectively as portfolio and investment decisions . The degree of irreversibility (or flexibility) chosen by experimenta l subjects in response to additional information indicated that subjec ts react to anticipated information as predicted by theory.