Insights From Behavioral Economics on Deviations From Rational Choice Theory
Abstract
This dissertation combines different research fields to enrich understanding of economic phenomena by integrating stated preference methods, experimental economics, and marketing. Specifically, two laboratory experiments are designed and conducted to study how the number of alternatives available impacts market valuation studies, and how small changes in the experimental design impact honesty and trusting in markets with asymmetric information.
Incentivizing has been proposed as a solution to the potential lack of candor in economic experiments, but how the number of alternatives available affects responses to incentives is uncertain. This question is explored using induced values in a discrete choice experiment, merging stated preference and experimental economics. Results indicate that engagement is positively correlated with profit-maximizing behavior, even after accounting for differences in payouts between alternatives. The number of alternatives available, however, does not affect profit-maximizing behavior when the difference between potential payouts is small, only when the difference between payouts is larger does profit-maximizing behavior improve. Results suggest that researchers can conduct incentivized choice experiments without all product alternatives available as long as participants are engaged with the task.
The second experiment studies markets with information asymmetry. In particular, how manipulating seemingly trivial aspects of a decision process influence honesty and trusting in an asymmetric market. This is accomplished using a seller-buyer game, merging experimental economics and marketing. Results show dishonesty of sellers with asymmetric information is partially mitigated by the interaction of adding a probability of being caught lying, making truth the default option, and having self-control available. Results indicate that self-control depletion also reduces trusting in buyers. Engagement plays an important role, with increased engagement resulting in less trust by buyers and more honesty in sellers.
A clearer picture of behavioral mechanisms in decision-making emerges by showing that engagement is more important than the number of alternatives available to promote profit-maximizing behavior. Further, the default option, self-control, and probability of being caught interact to affect honesty, and that engagement is crucial in economic decisions. This illustrates how behavioral economics contributes to solving economic problems in an multiple research area framework.
Citation
Chavez, Daniel Eduardo (2020). Insights From Behavioral Economics on Deviations From Rational Choice Theory. Doctoral dissertation, Texas A&M University. Available electronically from https : / /hdl .handle .net /1969 .1 /192864.