PEN-L message, Re: [Pen-l] America's Got Talent

Re: [Pen-l] America's Got Talent

To: Progressive Economics <pen-l@xxxxxxxxxxxxxxxxxx>

Subject: Re: [Pen-l] America's Got Talent

From: Jim Devine <jdevine03@xxxxxxxxx>

Date: Sat, 13 Jun 2009 07:17:43 -0700

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As far as I can tell, "economic rationality" simply means that as the price of an item goes up, the quantity demanded goes down (holding income constant). if true, so waht?

On Fri, Jun 12, 2009 at 3:13 PM, Max Sawicky <sawicky@xxxxxxxxxxx> wrote:

Haven't read the paper, but the title made me laugh.

2008 ARROW PRIZE FOR SENIOR ECONOMISTS

"The Market: Catalyst for Rationality and Filter of Irrationality"

http://www.bepress.com/bejeap/vol8/iss1/art47/

John A. List, University of Chicago and NBER
Daniel L. Millimet, Southern Methodist University

The B.E. Journal of Economic Analysis & Policy, www.bepress.com/bejeap

Assumptions of individual rationality and preference stability provide
the foundation for a convenient and tractable modeling approach. While
both of these assumptions have come under scrutiny in distinct
literatures, the two lines of research remain disjointed. This study
begins by explicitly linking the two literatures while providing
insights into whether market experience mitigates one specific form of
individual rationalityùconsistent preferences. Using field
experimental data gathered from more than 800 experimental subjects,
we find evidence that the market is a catalyst for this type of
rationality. The study then focuses on aggregate market outcomes by
examining empirically whether individual rationality of this sort is a
prerequisite for market efficiency. Using a complementary field
experiment, we gathered data from more than 380 subjects of age 6-18
in multi-lateral bargaining markets at a shopping mall. We find that
our chosen market institution is a filter of irrationality: even when
markets are populated solely by irrational buyers, aggregate market
outcomes converge to the intersection of the supply and demand
functions.
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