American Economic Review Vol. 104 No. 6 2014

Who Is (More) Rational?

Syngjoo Choi¹; Shachar Kariv²; Wieland Müller³; Dan Silverman⁴

¹ Department of Economics, University College London, Gower Street, London WC1E 6BT, UK (e-mail: ) · ² Department of Economics, University of California–Berkeley, 530 Evans Hall 3880, Berkeley, CA 94720-3880 (e-mail: ) · ³ Department of Economics and VCEE, University of Vienna, Oskar-Morgenstern-Platz 1, 1090 Vienna, Austria, and Department of Economics, CentER, and TILEC, Tilburg University (e-mail: ) · ⁴ Department of Economics, W. P. Carey School of Business, Arizona State University, PO Box 879801, Tempe, AZ 85287-9801, and NBER (e-mail: )

Abstract

Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function the choices maximize. We conduct a large-scale experiment to test for consistency with utility maximization. Consistency scores vary markedly within and across socioeconomic groups. In particular, consistency is strongly related to wealth: A standard deviation increase in consistency is associated with 15–19 percent more household wealth. This association is quantitatively robust to conditioning on correlates of unobserved constraints, preferences, and beliefs. Consistency with utility maximization under laboratory conditions thus captures decision-making ability that applies across domains and influences important real-world outcomes.

DOI

10.1257/aer.104.6.1518

Volume

104

Issue

6

Pages

1518-1550

Language

en

Sources

bibtex:phds-export.bib crossref openalex

Cite

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