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A test of diminishing marginal value

Author

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  • John Horowitz
  • John List
  • Kenneth McConnell

Abstract

The notion of diminishing marginal value had a profound impact on the development of neoclassical theory. Early neoclassical scholars had difficulty convincing contemporaries of the new paradigm's value until political economists used the critical assumption of diminishing marginal value to link utility and demand. While diminishing marginal value remains a key component of modern economic intuition, there is little direct verification of this behavioral property. This paper reports experiments on a myriad of subject pools to examine behavior in both price and exchange settings. We report results from nearly 900 subjects across 19 treatments and find strong evidence of diminishing marginal value.

Suggested Citation

  • John Horowitz & John List & Kenneth McConnell, 2007. "A test of diminishing marginal value," Framed Field Experiments 00160, The Field Experiments Website.
    • Handle: RePEc:feb:framed:00160
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    References listed on IDEAS

    as
    1. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, March.
    2. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 41-71.
    3. Kagel,John H. & Battalio,Raymond C. & Green,Leonard, 2007. "Economic Choice Theory," Cambridge Books, Cambridge University Press, number 9780521035927, September.
    4. Israel M. Kirzner, 1962. "Rational Action and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 70(4), pages 380-380.
    5. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-1284, December.
    6. Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    7. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    8. Harrison, Glenn W, 1992. "Theory and Misbehavior of First-Price Auctions: Reply," American Economic Review, American Economic Association, vol. 82(5), pages 1426-1443, December.
    9. Horowitz, John K. & McConnell, K. E., 2000. "Values elicited from open-ended real experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 41(3), pages 221-237, March.
    10. Horowitz, John K & McConnell, K E & Quiggin, John, 1999. "A Test of Competing Explanations of Compensation Demanded," Economic Inquiry, Western Economic Association International, vol. 37(4), pages 637-646, October.
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    Cited by:

    1. Oswald, Andrew J., 2008. "On the curvature of the reporting function from objective reality to subjective feelings," Economics Letters, Elsevier, vol. 100(3), pages 369-372, September.
    2. Jon X. Eguia & Dimitrios Xefteris, 2024. "Can growth heal the political divide?," University of Cyprus Working Papers in Economics 03-2024, University of Cyprus Department of Economics.
    3. Wilfred Amaldoss & Mushegh Harutyunyan, 2023. "Pricing of Vice Goods for Goal-Driven Consumers," Management Science, INFORMS, vol. 69(8), pages 4541-4557, August.
    4. John K. Horowitz & Kenneth E. McConnell & James J. Murphy, 2013. "Behavioral foundations of environmental economics and valuation," Chapters, in: John A. List & Michael K. Price (ed.), Handbook on Experimental Economics and the Environment, chapter 4, pages 115-156, Edward Elgar Publishing.
    5. Wilfred Amaldoss & Jinzhao Du & Woochoel Shin, 2021. "Media Platforms’ Content Provision Strategies and Sources of Profits," Marketing Science, INFORMS, vol. 40(3), pages 527-547, May.
    6. Gouthier, Matthias H.J. & Nennstiel, Carina & Kern, Nora & Wendel, Lars, 2022. "The more the better? Data disclosure between the conflicting priorities of privacy concerns, information sensitivity and personalization in e-commerce," Journal of Business Research, Elsevier, vol. 148(C), pages 174-189.
    7. Biel, Anders & Johansson-Stenman, Olof & Nilsson, Andreas, 2011. "The willingness to pay–willingness to accept gap revisited: The role of emotions and moral satisfaction," Journal of Economic Psychology, Elsevier, vol. 32(6), pages 908-917.

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