Economic Choice Theory: An Experimental Analysis of Animal Behaviour.

John Kagel, Raymond Battalio, and Leonard Green are well known for their pioneering research programme, in which experiments with rat and pigeon subjects are used to test economic theory. In this book, they summarise the results of their experiments, and of related work by other economists, psychologists, and biologists. Their research programme, they say, has three main objectives. First, and most important, it seeks to test the predictions of the economic theory of rational choice in controlled settings. Secondly, it tests economic theory against alternative theories of choice particularly, theories based on 'matching' heuristics that have been favoured by psychologists and biologists. Thirdly, it aims to shed light on some important social issues, such as the ' cycle of poverty' hypothesis and the debate about the disincentive effects of income taxation. In relation to the first two objectives, the authors' research programme has proved highly successful. The familiar theories of consumer choice and of labour supply, based on the assumption of consistent preferences and on the analysis of income and substitution effects, work remarkably well for rats and pigeons. By appropriate choices of experimental parameters, the authors have been able to induce responses which are difficult to explain in terms of matching heuristics, but which have familiar economic explanations. For example, they have induced Giffen goods, goods which are gross complements, and labour supply curves which slope upwards at low wages and then bend back. In contrast, animal subjects consistently violate both expected utility theory and principles of dynamic consistency. Interestingly, the patterns of those violations are similar to ones that have been observed among humans, and which recent work in economic theory has sought to explain. For example, rats reveal a common ratio effect (a version of the Allais paradox), and are riskaverse for losses but risk-loving for gains; pigeons behave as if their preference for consumption in period t relative to consumption in period -̂h i is stronger, the closer t is to the present. However, the authors' rational-choice account of animal behaviour confronts