Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Alexander W. Cappelen
Is There a Development Gap in Rationality?
(), Shachar Kariv
(), Erik Ø. Sørensen
() and Bertil Tungodden
Abstract: We report an experimental test of the four touchstones of
rationality in choice under risk – utility maximization, stochastic
dominance, expected-utility maximization and small-stakes risk neutrality –
with students from one of the best universities in the United States and
one of the best universities in Africa, the University of Dar es Salaam.
Although the US and the Tanzanian subjects come from different backgrounds
and face different economic prospects, they are united by being among the
most able in their societies. Importantly, many of whom will exercise an
outsized influence over economic and political affairs. We find very small
or no significant differences between the two samples in the degree of
rationality according to a number of standard economic measures. An
alternative approach is to take cognitive ability (IQ) as a proxy for
economic rationality. We show that a canonical IQ test indicates a much
larger development gap in rationality relative to our economic tests.
Keywords: Development; rationality; revealed preference; stochastic dominance; expected utility; risk aversion; cognitive ability; experiment.; (follow links to similar papers)
JEL-Codes: D01; D03; D81; F61; F63; O12; (follow links to similar papers)
34 pages, January 28, 2014
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