Are We All Predictably Irrational? An Experimental Analysis

Abstract

AbstractWe examine the question of rationality, replicating two core experiments used to establish that people deviate from the rational actor model. Our analysis extends existing research to a developing country context. Based on our theoretical expectations, we test if respondents make decisions consistent with the rational actor framework. Experimental surveys were administered in Côte d’Ivoire and Ghana, two developing countries in West Africa, focusing on issues of risk aversion and framing. Findings indicate that respondents make decisions more consistent with the rational actor model than has been found in the developed world. Extending our analysis to test if the differences in responses are due to other demographic differences between the African samples and the United States, we replicated these experiments on a nationally representative analysis in the U.S., finding results primarily consistent with the seminal findings of irrationality. In the U.S. and Côte d’Ivoire, highly educated people make decisions that are less consistent with the rational model while low-income respondents make decisions more consistent with the rational model. The degree to which people are irrational thus is contextual, possibly western, and not nearly as universal as has been concluded.