Economic rationality under cognitive load

Andreas Drichoutis
Agricultural University of Athens

Rodolfo M. Nayga Jr.
University of Arkansas

Economic analysis assumes that consumer behavior can be rationalized by a utility function. Previous research has shown that some decision-making quality can be captured by permanent cognitive ability but has not examined how a temporary load in subjects' working memory can affect economic rationality.
In a controlled laboratory experiment, we exogenously vary cognitive load by asking subjects to memorize a number while they undertake an induced budget allocation task (Choi et al. 2007a,b). Using a number of manipulation checks, we verify that cognitive load has adverse effects on subjects' performance in reasoning tasks. However, we find no effect in any of the goodness-of-fit measures that measure consistency of subjects' choices with the Generalized Axiom of Revealed Preference (GARP), despite having a sample size large enough to detect even small differences between treatments with 80% power.
Our finding suggests that researchers need not worry about economic rationality breaking down when subjects are placed under temporary working memory load.