Rational Choice in Experimental Markets

Abstract

The theory of rational behavior has several different uses. (i) It is used at the most fundamental level of experimental methodology to induce preferences used as parameters in models. (ii) It appears repeatedly in experimentally successful mathematical models of complex phenomena such as speculation, bidding and signaling. (iii) It is used as a tool to generate ex-post models of results that are otherwise inexplicable. (iv) It has been used as a tool to successfully design new institutions to solve specific problems. When tested directly the theory can be rejected. It is retained because neither an alternative theory nor an alternative general principle accomplishes so much.

Additional Information

Financial support from the National Science Foundation and from the Caltech Program of Enterprise and Public Policy is gratefully acknowledged. I wish to thank Kemal Guler for his help in processing the data used in Section III. I also wish to thank Barry Weingast and Harvey Reed for their collaboration on the ideas and background data processing that form that section. Published as Plott, Charles R. "Rational choice in experimental markets." Journal of Business (1986): S301-S327.

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