Economic rationality under cognitive load

Andreas Drichoutis and Rodolfo Nayga

MPRA Paper from University Library of Munich, Germany

Abstract: Economic analysis assumes that consumer behavior can be rationalized by a utility function. Previous research has shown that some decision-making quality can be captured by permanent cognitive ability but has not examined how a temporary load in subjects' working memory can affect economic rationality. In a controlled laboratory experiment, we exogenously vary cognitive load by asking subjects to memorize a number while they undertake an induced budget allocation task (Choi et al., 2007a,b). Using a number of manipulation checks, we verify that cognitive load has adverse affects on subjects' performance in reasoning tasks. However, we find no effect in any of the goodness-of-fit measures that measure consistency of subjects' choices with the Generalized Axiom of Revealed Preferences (GARP), despite having a sample size large enough to detect even small differences between treatments with 80% power. Our finding suggests that researchers need not worry about economic rationality breaking down when subjects are placed under temporary working memory load.

Keywords: Cognitive load; rationality; revealed preferences; working memory; response times; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 D03 D11 D12 G11 (search for similar items in EconPapers)
Date: 2017-08-20
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://mpra.ub.uni-muenchen.de/81735/1/MPRA_paper_81735.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/88192/1/MPRA_paper_88192.pdf revised version (application/pdf)

Related works:
Journal Article: Economic Rationality under Cognitive Load (2020)
Working Paper: Economic rationality under cognitive load (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81111

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