5 Laboratory Experiments: The Rationality of Homo economicus Versus the Reality
5 Laboratory Experiments: The Rationality of Homo economicus Versus the Reality of Homo sapiens
The laboratory experiments discussed in this chapter have been designed to test the Principle and Additional Rationality Axioms presented in Chapter 3. As you will see, we Homo sapiens are rather prolific in our violations of the rationality typified by Homo economicus.
Testing the Invariance Axiom (Version 1)
Consider the following experiments designed by Kahneman and Tversky (1984):
Experiment 1
Imagine that your hometown is preparing for the outbreak of an unusual disease that is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows:
If Program A is adopted, 200 people will be saved.
If Program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved.
Which of the two programs would you favor?
Experiment 2
Imagine that your hometown is preparing for the outbreak of an unusual disease that is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows:
If Program C is adopted, 400 people will die.
Which of the two programs would you favor?
Homo economicus would quickly determine that Program A in Experiment 1 is equivalent to Program C in Experiment 2, and Program B in Experiment 1 is similarly equivalent to Program D in Experiment 2. Thus, he would recognize that the two experiments themselves are equivalent. If each experiment were conducted separately with two different groups of Homo economicus, we would then naturally predict 50%-50% splits between Programs A and B among subjects participating in Experiment 1, and 50%-50% splits between Programs C and D among subjects participating in Experiment 2. These outcomes would be consistent with the Invariance Axiom.
To the contrary, when Kahneman and Tversky ran the experiments, 72%(28%) of the subjects in Experiment 1 chose Program A(B). The reverse occurred in Experiment 2, with 22%(78%) of the subjects choosing Program C(D). The authors surmised that this violation of the Invariance Axiom among Homo sapiens resulted from the experiments having been framed by different reference points. Experiment 1’s reference point is that people will be saved while Experiment 2’s is that people will die. This, in turn, led the Homo sapiens to make reference-dependent choices. Kahneman and Tversky identified this particular type of reference-dependency as a Reflection Effect.
Testing the Invariance Axiom (Version 2)
Kahneman and Tversky (1979) provide another test of reference-dependency and the Reflection Effect in an experiment with two groups of roughly 70 subjects each. The first group participated in the following experiment:
Experiment 1
Suppose you’ve been given $1,000