Bounding the Impact of Market Experience on Rationality: Evidence from a Field Experiment with Imperfect Compliance

John List () and Daniel L. Millimet ()

No 505, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: While laboratory experiments documenting some level of irrational behavior are now commonplace, explorations into whether such irrationalities exist in the field are rare. Equally as scarce are studies that explore the influence of market experience on the level and evolution of irrationality. Using field data gathered from more than 380 subjects of age 6-18, we investigate these issues using Generalized Axiom of Revealed Preference experiments. To circumvent the endogeneity of market experience, we exogenously induce such experience through the design of a field experiment. Compliance with the experiment was not perfect, however. We are, nevertheless, able to bound the average treatment effect using the sharp bounds derived in Balke and Pearl [Journal of the American Economic Association, 1997, 92, 1171-1776]. Empirical results indicate that deviations from rational behavior exist in the field, but that market experience is a significant contributor to the development of rational choice.Length: 20 pages

Keywords: rationality; market learning; field experiment; imperfect compliance; treatment effects; nonparametric bounds; instrumental variables; intent-to-treatCreation-Date: 2005-10 (search for similar items in EconPapers)
JEL-codes: C14 C93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-exp
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