The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions

53 Pages Posted: 16 Nov 2005 Last revised: 29 Sep 2010

See all articles by John A. List

John A. List

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2005

Abstract

The role of the market in mitigating and mediating various forms of behavior is perhaps the central issue facing behavioral economics today. This study designs a field experiment that is explicitly linked to a controlled laboratory experiment to examine whether, and to what extent, social preferences influence outcomes in actual market transactions. While agents drawn from a well-functioning marketplace behave in accord with social preference models in tightly controlled laboratory experiments, when observed in their naturally occurring settings their behavior approaches what is predicted by self-interest theory. In the limit, much of the observed behavior in the marketplace that is consistent with social preferences is due to reputational concerns: suppliers who expect to have future interactions with buyers provide higher product quality only when the buyer can verify quality via a third-party certifier. The data also speak to theories of how reputation effects enhance market performance. In particular, reputation and the monitoring of quality are found to be complements, and findings suggest that the private market can solve the lemons problem through third party verification.

Suggested Citation

List, John A., The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions (September 2005). NBER Working Paper No. w11616. Available at SSRN: https://ssrn.com/abstract=807605

John A. List (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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