Who Is (More) Rational?

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Author

Shachar Kariv, PhD.,

Dan Silverman, PhD.

Read time 20 minutes

Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function the choices maximize.

In our research, we conducted a large-scale experiment to test for consistency with utility maximization. Consistency scores are strongly related to wealth: a standard deviation increase in consistency is associated with 15-19% more household wealth.

This association is quantitatively robust to conditioning on correlates of unobserved constraints, preferences, and beliefs.

Consistency with utility maximization under laboratory conditions thus captures decision-making ability that applies across domains and influences important real-world outcomes.

Who Is (More) Rational?

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About author

Shachar Kariv, PhD.

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He is also the Benjamin N. Ward Professor of Economics and the recent Chair of the Economics Department at the University of California, Berkeley – recognized as one of the world’s most impactful and influential economics institutions.

Shachar is widely regarded as the top decision theorist and game theorist in the world.

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About author

Dan Silverman, PhD.

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He is the Rondthaler Family Professor of Economics at Arizona State University (currently on sabbatical), and a microeconomist whose research blends economic theory and econometrics to study how public and private policies influence decision-making.

His recent work leverages ‘big data’ and novel blends of surveys and experiments to gain insights into the quality of spending and saving choices, especially in the years leading up to and after retirement.