How Biases in Individual Judgments Affect Market Outcome

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This project continues research involving a series of experiments designed to test whether decision-making biases of individuals persist in a market environment. The investigator has completed a set of experiments and found that decision-making biases do persist to some extent in simple-market situations. The purpose of this project is to undertake a set of experiments in more complex market environments to determine whether or not the market can correct for these biases. This research is important for two reasons. First, it is often asserted that markets are efficient and, in the aggregate, eliminate irrational decisions of individuals. This research is aimed at testing this basic assumption. Secondly, the research has the potential to expand our understanding of how, in fact, markets operate to mitigate or eliminate irrational decisions by examining the significance of different market features. The results of this study should yield important insights into the nature of decision making under conditions of uncertainty, and to spur the development of new models and hypotheses and to set the standards for empirical work in this area of research.