Document Type
Article
Publication Date
9-1-2008
Abstract
We investigate the distribution of risk preferences and the frequency of expected utility violations along the gradient of market development. To do this, we collect experimental and survey data from a random sample of the population at four sites in Peru that differ in their level of competition and development. Similar to previous studies, we find that violations of expected utility theory are frequent. More importantly, however, violations are far less frequent the more competitive the market is. Also, our study suggests that experience in trade is not always associated with fewer behavioral anomalies. For instance, wholesale traders in an oligopolistic market with many years of experience are more likely to violate expected utility theory than entrepreneurs in an adjacent market with less experience. As hypothesized by Alchian (1950), it is in highly competitive markets where the evidence of rational behavior is found.
Recommended Citation
Castillo, Marco; Petrie, Ragan; and Torero, Maximo, "Rationality and the Nature of the Market" (2008). ExCEN Working Papers. 110.
https://scholarworks.gsu.edu/excen_workingpapers/110
Comments
To learn more about the Andrew Young School of Policy Studies and ExCEN Working Papers Series, visit https://aysps.gsu.edu/ and http://excen.gsu.edu/center/.