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Naturally Occurring Preferences And General Equilibrium: A Laboratory Study

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  • Sean Crockett
  • Daniel Friedman
  • Ryan Oprea

Abstract

We examine whether economies constructed using experimentally measured preferences (for risk) tend to suffer from aggregation pathologies (like nonexistence and multiplicity of equilibrium) cautioned by the Sonnenschein–Mantel–Debreu theorem. We show that aggregation pathologies should be expected to arise frequently in homogeneous exchange economies, but dwindle and eventually disappear as economies grow diverse. When subjects actually trade, general equilibrium predictions are accurate in most cases, and the failures occur only in economies a priori classified as fragile to preference instability. Our study uses individual‐level experimental data to address longstanding questions in general equilibrium theory that are unanswerable using prior methods.

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  • Sean Crockett & Daniel Friedman & Ryan Oprea, 2021. "Naturally Occurring Preferences And General Equilibrium: A Laboratory Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 831-859, May.
  • Handle: RePEc:wly:iecrev:v:62:y:2021:i:2:p:831-859
    DOI: 10.1111/iere.12500
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    Cited by:

    1. Antonio Filippin & Marco Mantovani, 2023. "Risk aversion and information aggregation in binary‐asset markets," Quantitative Economics, Econometric Society, vol. 14(2), pages 753-798, May.

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