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Do Institutions Promote Rationality? An Experimental Study of the Three-Door Anomaly

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Listed author(s):
  • Tilman Slembeck

    ()

  • Jean-Robert Tyran

    ()

Abstract

The three-door problem is an astounding example of a systematic violation of a key rationality postulate. In this seemingly simple individual decision task, most people initially fail to correctly apply Bayes’ Law, and to make the payoff-maximizing choice. Previous experimental studies have shown that individual learning reduces the incidence of irrational choices somewhat, but is far from eliminating it. We experimentally study the roles of communication and competition as institutions to mitigate the choice anomaly. We show that the three-door anomaly can be entirely eliminated by these institutions.

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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2002 with number 2002-21.

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Length: 36 pages
Date of creation: Oct 2002
Handle: RePEc:usg:dp2002:2002-21
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Keywords: Bayes’ Law; learning; competition; communication; individual decision making; group decision making.;

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Find related papers by JEL classification:
  • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
  • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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