Who is (more) rational?
Choi,S. Kariv,S. Müller,Wieland Silverman,D.
Choi,S.
Kariv,S.
Müller,Wieland
Silverman,D.
Abstract
Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function the choices maximize. We conduct a large-scale experiment to test for consistency with utility maximization. Consistency scores vary markedly within and across socioeconomic groups. In particular, consistency is strongly related to wealth: a standard deviation increase in consistency is associated with 15-19 percent more household wealth. This association is quantitatively robust to conditioning on correlates of unobserved constraints, preferences, and beliefs. Consistency with utility maximization under laboratory conditions thus captures decision-making ability that applies across domains and influences important real-world outcomes.
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2014-06
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Research Projects
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Choi, S, Kariv, S, Müller, W & Silverman, D 2014, 'Who is (more) rational?', American Economic Review, vol. 104, no. 6, pp. 1518-1550. https://doi.org/10.1257/aer.104.6.1518