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A Test of Diminishing Marginal Value
Author(s) -
HOROWITZ JOHN,
LIST J.,
McCONNELL K. E.
Publication year - 2007
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00565.x
Subject(s) - economics , marginal value , value (mathematics) , intuition , exchange value , marginal utility , marginal profit , marginal cost , microeconomics , neoclassical economics , positive economics , adam smith , mathematics , psychology , cognitive science , statistics
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 behavioural property. This paper reports experiments on a myriad of subject pools to examine behaviour in both price and exchange settings. We report results from nearly 900 subjects across 19 treatments and find strong evidence of diminishing marginal value.