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

Author

Listed:
  • 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

Suggested Citation

  • List, John & Millimet, Daniel, "undated". "Bounding the Impact of Market Experience on Rationality: Evidence from a Field Experiment with Imperfect Compliance," Departmental Working Papers 0505, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:0505
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    References listed on IDEAS

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    Cited by:

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    2. Bettinger, Eric & Slonim, Robert, 2007. "Patience among children," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 343-363, February.
    3. Berg, Nathan & Biele, Guido & Gigerenzer, Gerd, 2010. "Does consistency predict accuracy of beliefs?: Economists surveyed about PSA," MPRA Paper 26590, University Library of Munich, Germany.
    4. 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.
    5. María Paz Espinosa & Javier Gardeazabal, 2013. "Do Students Behave Rationally in Multiple Choice Tests? Evidence from a Field Experiment," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 9(2), pages 107-135, July.
    6. Lu, Xiaomeng & Zhang, Yong & Zhang, Yixing & Wang, Lin, 2020. "Can investment advisors promote rational investment? Evidence from micro-data in China," Economic Modelling, Elsevier, vol. 86(C), pages 251-263.
    7. Yinan Yang & Qian Wang, 2018. "Insurance Inclusion, Time Preference And Stock Investment Of The Chinese Households," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(01), pages 27-44, March.

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    More about this item

    Keywords

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

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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