Reasoning and Institutions: Do Markets Facilitate LogicalReasoning in the Wason Selection Task?

A vast literature shows that individuals frequently fail to identify the normative solutionsin logical reasoning tasks. Much attention has been devoted to the study ofthese deviations at the individual level; less effort was exerted to investigate whetherinstitutional settings might facilitate and improve reasoning. In this paper we addressthis question by embedding theWason selection task in a competitive market: each ofthe four cards of the task was traded over multiple periods in anonymous continuousdouble auctions, and with real financial incentives. The results of two experiments involving28 markets, with eight subjects each, indicate that errors in logical reasoningpersist, and are present in a wide variety of trading variables, such as prices, volumeand liquidity. The market’s behavior reflects the normatively correct outcome onlywhen a substantial number of traders know the correct solution.