From 2019... 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

From 2019... Are We All Predictably Irrational? An Experimental Analysis. John A. Doces & Amy Wolaver. Political Behavior volume 43, pp1205–1226. Dec 18 2019. https://link.springer.com/article/10.1007/s11109-019-09579-0

Abstract: We 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.

Introduction

Are we all predictably irrational? Since the seminal work of Tversky and Kahneman (1974, 1981, 1986, 1991) and other behavioral economists (Akerlof and Kranton 2000; Ariely 2010; Camerer 2003; Thaler 1980), the usefulness of models assuming rationality has been questioned, if not entirely dismissed in some cases (Green and Shapiro 1994; Sen 1977). However, the vast majority of the empirical work establishing consistently irrational behaviors has been conducted on populations in the West, dubbed WEIRD for Western, educated, industrialized, rich and democratic (Henrich et al. 2010). In their review of the psychology literature, Henrich et al. (2010) indicate that 68% of subjects were from the United States, 96% from the Western Industrialized world, with 80% of the Western sample being undergraduate students. If other populations behave differently than these groups, then the implications of the new models of behavior may not be as widely applicable as we thought.

There have been some forays examining deviations from the predictions based on the rational actor model across different populations, notably studies of the impact that poverty has on decision-making. While some studies establish ways in which poverty decreases cognitive ability through the additional stresses associated with living in poverty (Mani et al. 2013; Haushofer and Fehr 2014), others argue that the influence of poverty on decisions is related more to additional constraints and a constant presence of risk in the lives of the poor (Duflo 2006; Banerjee and Duflo 2007; Carvalho et al. 2016). There is a growing body of literature that establishes that the poor are less subject to some of the cognitive biases found by Tversky and Kahneman (Shah et al. 2015, 2018). Possible explanations for the differences in decision-making by the poor are that poverty may increase attention to costs, and/or it exposes one to more risk, which causes people to give more weight to current versus future outcomes.

To determine whether these predictable irrationalities are applicable in other parts of the world, we replicate some of the most important experiments conducted by Tversky and Kahneman (1981) in Côte d’Ivoire and Ghana, and compare these samples to those from Western populations. We find that respondents from Côte d’Ivoire and Ghana make decisions that are closer to the model of rationality than Westerners. Building on this key finding, we also examine the effects of individual characteristics on decision-making to determine whether there are systematic differences within these populations. Here, we find that most sub-groups, with some exceptions, make decisions that are relatively more consistent with the predictions of the rational model than has been found in prior research. Finally, to ascertain why the differences exist between the original results from 1981 and our data, we re-consider two of the original experiments in a nationally representative sample of American adults. This sample provides support for the 1981 results of systematic irrationality, with important exceptions, and helps to contrast our findings from West Africa that the rational actor model is most applicable in the developing world.

Our empirical results, in sum, suggest there is more merit to the rational choice paradigm than perhaps has been thought, and that existing studies concluding people are predictably irrational are overstated in a number of ways. This is an important finding with implications for several areas of academic scholarship. The rational actor model has served as the cornerstone assumption about the behavior of political actors, influencing research in political science on voter choice, foreign policy making, conflict, and international political economy amongst others (de Mesquita and Smith 2011; Mansfield et al. 2000; Powell 1991; Slantchev and Tarar 2011). Recent work has extended the paradigm to explicitly non-western contexts (Hollyer et al. 2015). Nevertheless, debates about its utility in political science have been especially spirited (de Mesquita and Morrow 1999; Walt 1999), with one enduring criticism being the lack of empirical support that people behave as the model assumes, a point which even supporters acknowledge (Kahler 1998; Snidal 2002). In economics, as well, the core mainstream model assumes rationality, with applications to the law (Posner 2014) and even addiction (Becker et al. 1991). By addressing the empirical underpinnings of rational choice, we help fill an important gap in our understanding of rationality and show that the model might be most relevant for non-western populations.