Convergence to Utility Maximization and the Indifference Hypothesis

Abstract

We ask if participants in a choice experiment with repeated presentation of the same menus and no feedback provision: (i) exhibit overall behaviour that is consistent with ordinal and expected utility theory under *weak* preferences; (ii) become more consistent with the predictions of these theories under *strict* preferences.To answer these questions we designed and implemented a free-choice lab experiment with 15 distinct menus. Each menu contained two, three and four lotteries with three monetary outcomes, and was shown five times. Subjects could avoid/defer making active choices at a positive expected cost. Among our 308 subjects from the UK and Germany, significantly more were compatible with ordinal and expected utility maximization in their last 15 than in their first 15 identical decision problems. Around a quarter and a fifth of all subjects, moreover, were compatible with those modes *throughout* the experiment, with nearly half of these under weak preferences. Choice consistency is positively correlated with cognitive ability, and subjects who converged to utility-maximizing behaviour were more cognitively able than those who did not. We discuss potential implications of our study's novel set of findings.