Exchange economies were created in which individuals faced losses. If people are risk seeking in the losses, as predicted by prospect theory, then due to the nonconvexity, the competitive equilibria are all on the boundaries of the Edgeworth Box. The experimental results are that risk-seeking behavior is observed in many people and appears in markets as predicted. In addition, market behavior is consistent with answers to hypothetical questionnaires. Contrary to prospect theory, risk seeking seems to diminish with experience; preferences in the market setting are not labile; and risk-seeking preferences are not simply a result of framing effects.

The study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one-period security. Returns to the security depended upon a randomly drawn state of nature. Some agents (insiders), whose identity was unknown to other agents, knew the state before the markets opened. With replication of market conditions the predictions of a fully revealing rational-expectations model are relatively accurate. Prices adjusted immediately to near rational-expectations prices; profits of insiders were virtually indistinguishable from noninsiders; and efficiency levels converged to near 100 percent.

The paper provides several axiomatizations of the concept of "path independence" as applied to choice functions defined over finite sets. The axioms are discussed in terms of their relationship to "rationality" postulates and their meaning with respect to social choice models.

Frank DeMeyer, Charles R. Plott; A Welfare Function Using “Relative Intensity” of Preference*, The Quarterly Journal of Economics, Volume 85, Issue 1, 1 Fe

Consider a committee or society attempting to order the alternatives (X_1, X_2, X_3) by use of majority rule. Each individual is assumed to have a strong ordering (called a profile) on the alternatives. "Indifference" is not a property of the profiles. The committee is said to "prefer" X_i to X_j, denoted X_iCX_j if X_i is preferred to X_j on a majority of the individual profiles. It is well known that if certain individual profiles are chosen, the resulting "social ordering" may be cyclical, i.e., X_iCX_j, X_jCX_k, X_kCX_i. Such a result is called a "cycle."