Microeconomics, Experimental Economics, and Econometrics
Rationality, Error, and Random Revealed Preferences [draft available on request]
The assumption of economic rationality makes it possible to recover, from observed choices, some underlying preferences relation. Observed choice data, whether collected in the lab or the field, is known to have some measurement error. When otherwise rational choices are observed with error, they will not satisfy testable criteria for rationality. I find that when rational choices are contaminated with error, it is possible to interpret the rate of contamination as a measure of rationality for the dataset. I show how to estimate this rate with no additional assumptions on the underlying choice preferences, and with minimal assumptions on the error distribution. The researcher observes a single individual's choices from a sequence of different overlapping menus of alternatives. In this setting each menu has a different preferred choice; so the researcher effectively observes a single draw from each of a sequence of non-identical distributions. Rationality of the preferred choices restricts the relationship between the centrality of these distributions, which I exploit to estimate the error rate. Unlike existing methods, the approach presented in this paper can be applied to a variety of choice spaces, including choices over discrete menus of options. More generally, this research extends the method of revealed preferences into the realm of random graphs and empirical network analysis.
Destructive Behavior, Economic Decision-making, and Judgment Under Thermal Stress with Ingvild Almås, Maximilian Auffhammer, Tessa Bold, Ian Bolliger, Solomon Hsiang, Shuhei Kitamura, Edward Miguel, and Robert Pickmans
External Validity of Lab Experiments: The Case of Economic Rationality with Shachar Kariv, Raja Sangupta, and Sid Feygin
At the heart of Economics is the principle of rationality, namely that an individual's choices are determined by a fixed, if unknown, set of preferences over alternatives. Numerous lab experiments have found that most people demonstrate rational decision making, even when allowing for individual heterogeneity in preferences. However, questions of external validity remain- is the observed rationality due to the lab setting itself and the short time period over which choices are typically observed? To answer this we leverage the recent widespread adoption of smartphones and the resulting unprecedented access to individuals as they go about their daily lives. We present results from work that takes a computer-based experiment measuring rationality out of the lab and onto the smartphone. Individuals participate in the experiment on their smartphones, while going about their lives, over a period of five days. We measure the rationality of each individual's choices over this period and find that the distribution of rationality across the sample does not differ from that found in lab experiments. The result of our experiment provides evidence for temporal and environmental external validity of lab experiments. Additionally we collect background data from built-in phone sensors and find no significant correlations between observable behavior and rationality.
Ever Since Allais and Ellsberg (preliminary results) with Shachar Kariv, Matthew Polisson, and John K.-H. Quah
Emotions and Decision Making over Risk: A Smartphone Experiment (preliminary results) with Sid Feygin and Orianna DeMassi