Rationality Spillovers

We design an experiment to test whether the rationality induced by market discipline spills over to nonmarket settings - a rationality spillover. Our results confirm this new phenomenon. The rationality induced by market discipline extends to the nonmarket setting, and these spillover effects are robust even when the nonmarket setting involves hypothetical choices and environmental lotteries. We observe that the motivating behavioral is from a downward revision of the stated values placed on high-risk lotteries, and not from a change of preference ordering