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Is there a development gap in rationality?

Cappelen, Alexander W.; Kariv, Shachar; Sørensen, Erik Ø.; Tungodden, Bertil
Working paper
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URI
http://hdl.handle.net/11250/194527
Date
2014-03
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  • Discussion papers (SAM) [676]
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.
Publisher
Norwegian School of Economics. Department of Economics
Series
Discussion paper;8/2014

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