Who is (more) rational?

Syngjoo Choi, Shachar Kariv, Wieland Müller, Daniel Silverman

Research output: Contribution to journalArticle

51 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1518-1550
Number of pages33
JournalAmerican Economic Review
Volume104
Issue number6
DOIs
StatePublished - Jun 2014

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ASJC Scopus subject areas

  • Economics and Econometrics

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