Are people irrational? Many economic experiments have shown that people often make seemingly irrational or paradoxical choices.
An article by Ryan, Watson, and Entwistle (Health Econ 2009) probes whether or not people really are irrational using discrete choice experiments (i.e., pick option A or option B). What they found is that some of the “irrational” behavior is often due to additional assumptions by the participants. To understand which idiosyncratic assumptions individual carry with them, the authors ask people to think aloud while they are answering the questions. This way, the authors are able to evaluate if the participants are having the same assumptions the designer of the economic experiment.
For instance, the paper found that some individual choose high cost over a low cost options. The reason for the was that some people believe that high cost can be a proxy for quality.
“You see I feel if you pay more you are obviously going to get more, they are going to do more for you, because that’s just a way of life isn’t it. I don’t mean to say that you have always got to pay a big price but sometimes, the saying is ‘pay cheap, pay dear’.”
Other people could not afford to pay for either option and thus they ignored the cost of each option.
“I thought with the 10 questions there, you were looking at it and thinking ‘what’s more important’? Before the cost was important to me, at the start. I was saying to myself ‘well I can’t afford £48, I know I can’t afford £48, I’m unemployed’. But the more I am answering the questions, the cost was coming out of the equation…”
This “think aloud” technique is a great way for experimental economists to verify that their experiments are actually testing what they claim to test.
- Ryan, Watson, and Entwistle (2009) “Rationalising the irrational: a think aloud study of discrete choice experiment responses” Health Economics, v18(3):321-336.