American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
A Kinky Consistency: Experimental Evidence of Behavior under Linear and Nonlinear Budget Constraints
American Economic Journal: Microeconomics
vol. 16,
no. 3, August 2024
(pp. 424–58)
Abstract
Individuals face nonlinear incentives in myriad situations. We test a fundamental assumption in such settings: that individuals display stable preferences when facing linear and nonlinear incentives. We use a laboratory experiment to characterize how revealed preferences are affected by changes in the budget set environment. Choices under kinked budgets exhibit the same very high levels of internally consistent behavior as they do under linear budgets. However, for about half the subjects, choices across settings are inconsistent with the maximization of a stable preference. Subjects displaying arbitrary consistency exhibit large and significant changes in utility parameters, risk premiums, and price elasticities across settings.Citation
Huet-Vaughn, Emiliano, Ethan M. L. McClure, and Juan Carlos Suárez Serrato. 2024. "A Kinky Consistency: Experimental Evidence of Behavior under Linear and Nonlinear Budget Constraints." American Economic Journal: Microeconomics, 16 (3): 424–58. DOI: 10.1257/mic.20220086Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D12 Consumer Economics: Empirical Analysis
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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