Insensitivity to Prices in a Dictator Game

In this paper we examine the relationship between prices and violations of the Generalized Axiom of Revealed Preference (GARP) in dictator games. Using new experimental data and a new algorithm that adjusts budget prices to eliminate GARP violations, we introduce a new measure of consistency of choices, and we identify a systemic relationship between prices and violations. We find that pushing prices away from extremes tends to eliminate the violations of most subjects, a phenomenon that we call “price insensitivity”.
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