The development gap in economic rationality of future elites

Abstract

We test the touchstones of economic rationality—utility maximization, stochastic dominance, and expected-utility maximization—of elite students in the U.S. and in Africa. The choices of most students in both samples are generally rationalizable, but the U.S. students' scores are substantially higher. Nevertheless, the development gap in economic rationality in incentivized risk choices between these future elites is much smaller than the difference in performance on a non-incentivized canonical cognitive ability test, often used as a proxy for economic decision-making ability in studies of economic development and growth. We argue for the importance of including consistency with economic rationality in studies of decision-making ability.