The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions

John List

No 11616, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The role of the market in mitigating and mediating various forms of behavior is perhaps the central issue facing behavioral economics today. This study designs a field experiment that is explicitly linked to a controlled laboratory experiment to examine whether, and to what extent, social preferences influence outcomes in actual market transactions. While agents drawn from a well-functioning marketplace behave in accord with social preference models in tightly controlled laboratory experiments, when observed in their naturally occurring settings their behavior approaches what is predicted by self-interest theory. In the limit, much of the observed behavior in the marketplace that is consistent with social preferences is due to reputational concerns: suppliers who expect to have future interactions with buyers provide higher product quality only when the buyer can verify quality via a third-party certifier. The data also speak to theories of how reputation effects enhance market performance. In particular, reputation and the monitoring of quality are found to be complements, and findings suggest that the private market can solve the lemons problem through third party verification.

JEL-codes: C93 D63 D64 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-exp and nep-pke
Note: PE
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Citations: View citations in EconPapers (14)

Published as John A. List, 2006. "The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 1-37, February.

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Journal Article: The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions (2006)
Working Paper: The behavioralist meets the market: Measuring social preferences and reputation effects in actual transactions (2006)
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