Invisible Hand, invisible morals: An experiment

Aaron Nicholas

Journal of Economic Behavior & Organization, 2022, vol. 197, issue C, 395-418

Abstract: Evidence continues to suggest that humans behave consistent with selfishness when interacting in competitive markets: “this general result remains one of the most robust findings in experimental economics” (John List, 2017). However, in competitive markets, behaviour consistent with selfishness need not imply selfish preferences. Further, the competitive equilibrium may not be welfare-maximising in the presence of non-selfish preferences. I develop an experiment to scrutinize buyers’ preferences in a competitive market setting through the revelation of sellers’ profit to buyers. I find that while prices in the market may converge to standard (selfish) equilibrium predictions, buyers’ choices reveal non-selfish preferences. Controlling for prices, buyers are more likely to choose sellers who earn a smaller profit from the trade. Consequently, standard notions of efficiency may be insufficient for characterising the welfare properties of the competitive equilibrium.

Keywords: Competitive markets; Other-regarding preferences; Market efficiency; Profit revelation (search for similar items in EconPapers)
JEL-codes: D01 D02 D63 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:197:y:2022:i:c:p:395-418

DOI: 10.1016/j.jebo.2022.03.004

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