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A Test of Diminishing Marginal Value

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  • JOHN HOROWITZ
  • J. LIST
  • K. E. McCONNELL

Abstract

The notion of diminishing marginal value had a profound impact on the development of neoclassical theory. Early neoclassical scholars had difficulty convincing contemporaries of the new paradigm's value until political economists used the critical assumption of diminishing marginal value to link utility and demand. While diminishing marginal value remains a key component of modern economic intuition, there is little direct verification of this behavioural property. This paper reports experiments on a myriad of subject pools to examine behaviour in both price and exchange settings. We report results from nearly 900 subjects across 19 treatments and find strong evidence of diminishing marginal value.

Suggested Citation

  • JOHN HOROWITZ & J. LIST & K. E. McCONNELL, 2007. "A Test of Diminishing Marginal Value," Economica, London School of Economics and Political Science, vol. 74(296), pages 650-663, November.
  • Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:650-663
    DOI: 10.1111/j.1468-0335.2006.00565.x
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    References listed on IDEAS

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    1. Kagel,John H. & Battalio,Raymond C. & Green,Leonard, 2007. "Economic Choice Theory," Cambridge Books, Cambridge University Press, number 9780521035927, October.
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