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Bounding the Impact of Market Experience on Rationality: Evidence from a Field Experiment with Imperfect Compliance

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Author Info

  • List, John

    () (U of Chicago)

  • Millimet, Daniel

    () (SMU)

Abstract

While laboratory experiments documenting some level of irrational behavior are now commonplace, explorations into whether such irrationalities exist in the field are rare. Equally as scarce are studies that explore the influence of market experience on the level and evolution of irrationality. Using field data gathered from more than 380 subjects of age 6-18, we investigate these issues using Generalized Axiom of Revealed Preference experiments. To circumvent the endogeneity of market experience, we exogenously induce such experience through the design of a field experiment. Compliance with the experiment was not perfect, however. We are, nevertheless, able to bound the average treatment effect using the sharp bounds derived in Balke and Pearl [Journal of the American Economic Association, 1997, 92, 1171-1776]. Empirical results indicate that deviations from rational behavior exist in the field, but that market experience is a significant contributor to the development of rational choice.Length: 20 pages

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Bibliographic Info

Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0505.

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Handle: RePEc:smu:ecowpa:0505

Contact 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

Related research

Keywords: rationality; market learning; field experiment; imperfect compliance; treatment effects; nonparametric bounds; instrumental variables; intent-to-treatCreation-Date: 2005-10;

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References

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  1. List, John & Millimet, Daniel, 2005. "The Market: Catalyst for Rationality and Filter of Irrationality," Departmental Working Papers 0504, Southern Methodist University, Department of Economics.
  2. repec:feb:artefa:0048 is not listed on IDEAS
  3. Slonim, Robert L., 1999. "Learning rules of thumb or learning more rational rules," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 217-236, February.
  4. MacCrimmon, K R & Toda, M, 1969. "The Experimental Determination of Indifference Curves," Review of Economic Studies, Wiley Blackwell, vol. 36(108), pages 433-51, October.
  5. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
  6. Lechner, Michael, 1996. "Nonparametric bounds on employment and income effects of continuous vocational training in East Germany," ZEW Discussion Papers 96-31, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Mattei, Aurelio, 2000. "Full-scale real tests of consumer behavior using experimental data," Journal of Economic Behavior & Organization, Elsevier, vol. 43(4), pages 487-497, December.
  8. William T. Harbaugh & Kate Krause & Timothy R. Berry, 2001. "GARP for Kids: On the Development of Rational Choice Behavior," American Economic Review, American Economic Association, vol. 91(5), pages 1539-1545, December.
  9. Tjalling C. Koopmans, 1962. "On Flexibility of Future Preference," Cowles Foundation Discussion Papers 150, Cowles Foundation for Research in Economics, Yale University.
  10. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
  11. Sandra J. Peart, 2000. "Irrationality and intertemporal choice in early neoclassical thought," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 175-189, February.
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Cited by:
  1. Jonathan Guryan & Kory Kroft & Matthew J. Notowidigdo, 2009. "Peer Effects in the Workplace: Evidence from Random Groupings in Professional Golf Tournaments," American Economic Journal: Applied Economics, American Economic Association, vol. 1(4), pages 34-68, October.
  2. Berg, Nathan & Biele, Guido & Gigerenzer, Gerd, 2010. "Does Consistency Predict Accuracy of Beliefs?: Economists Surveyed About PSA," MPRA Paper 24976, University Library of Munich, Germany.
  3. Bettinger, Eric & Slonim, Robert, 2007. "Patience among children," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 343-363, February.

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