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Invisible Hand, invisible morals: An experiment

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  • Nicholas, Aaron

Abstract

Evidence continues to suggest that humans behave consistent with selfishness when interacting in competitive markets: “this general result remains one of the most robust findings in experimental economics” (John List, 2017). However, in competitive markets, behaviour consistent with selfishness need not imply selfish preferences. Further, the competitive equilibrium may not be welfare-maximising in the presence of non-selfish preferences. I develop an experiment to scrutinize buyers’ preferences in a competitive market setting through the revelation of sellers’ profit to buyers. I find that while prices in the market may converge to standard (selfish) equilibrium predictions, buyers’ choices reveal non-selfish preferences. Controlling for prices, buyers are more likely to choose sellers who earn a smaller profit from the trade. Consequently, standard notions of efficiency may be insufficient for characterising the welfare properties of the competitive equilibrium.

Suggested Citation

  • Nicholas, Aaron, 2022. "Invisible Hand, invisible morals: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 395-418.
    • Handle: RePEc:eee:jeborg:v:197:y:2022:i:c:p:395-418
    DOI: 10.1016/j.jebo.2022.03.004
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    More about this item

    Keywords

    Competitive markets; Other-regarding preferences; Market efficiency; Profit revelation;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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