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The Market: Catalyst for Rationality and Filter of Irrationality Author info | Abstract | Publisher info | Download info | Related research | Statistics List, John () (U of Chicago)
Millimet, Daniel () (SMU)
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Assumptions of individual rationality and preference stability provide the foundation for a convenient and tractable modeling approach. While both of these assumptions have come under scrutiny in distinct literatures, the two lines of research remain disjointed. This study begins by explicitly linking the two literatures while providing insights into perhaps the central issue facing behavioral economics today: to what extent does market experience mitigate various forms of individual irrationality? We find considerable evidence that the market is a catalyst for rationality. The study then focuses on aggregate market outcomes by examining empirically whether individual rationality is a prerequisite for market efficiency. Using field data gathered from more than 380 subjects of age 6-18 in multi-lateral bargaining markets at a shopping mall, we find that the market is a filter of irrationality—even when markets are populated solely by irrational buyers, aggregate market outcomes quickly converge to neoclassical predictions.Length: 44 pages
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Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number
0504.
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Date of creation: Oct 2005Date of revision:
Handle: RePEc:smu:ecowpa:0504Contact details of provider: Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496 Phone: 214-768-2715 Fax: 214-768-1821 Web page: http://www.smu.edu/economics
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Find related papers by JEL classification: C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
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Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
List, John & Millimet, Daniel, .
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Dirk Engelmann & Guillaume Hollard, 2009.
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