Who Is (More) Rational?
DateAug 5th, 2013
Read time 20 minutes
Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function the choices maximize.
In our research, we conducted a large-scale experiment to test for consistency with utility maximization. Consistency scores are strongly related to wealth: a standard deviation increase in consistency is associated with 15-19% 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.