IMPROVING CONTRACTORS BIDS USING PREFERENCE REVERSAL PHENOMENON

Owners of projects have the opportunity to improve the bids obtained f rom bidders by using a well-known psychological phenomenon called ''pr eference reversal.'' This is a systematic tendency of people, to pay m ore than they should for less attractive choices in specific situation s-a phenomenon that has been extensively documented by psychologists. In the present research this effect was demonstrated experimentally fo r the field of construction in several series of structured interviews with professionals in construction management and real estate develop ment regarding realistic bidding situations. The strength of the effec t was found to depend on two factors recently shown to have a strong i nfluence on contractors' behavior: the risk of the project and the con tractor's need-for-work. The pervasiveness of the preference reversal phenomenon in the construction industry has implications for owners of projects to help reduce their costs: owners should structure the desi gn process as a construction management project and then shift to a lu mp sum contract for the construction phase.