2013-02: Who Is (More) Rational?


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 house- hold 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.

Syngjoo Choi
Shachar Kariv
Wieland Muller
Dan Silverman
Publication date: 
April 11, 2013
Publication type: 
2013 Working Papers