Derek L. Hansen and Dr. Mark Showalter, Economics,

A theory is only as good as the assumptions upon which it is based. Because of this, assumptions are constantly held up to the light to see if, in fact, they are genuine. In the field of Economics, several assumptions are made concerning the rationality of humans. One of these presumed rational behaviors is called transitivity. Transitivity simply means that if I prefer A to B, and B to C, it follows that I should also prefer A to C. The purpose of this project was to test whether or not people are transitive, and if so, what factors contribute to people being more or less transitive. Knowing to what extent, and in what circumstances, people are transitive will help determine how accurate economic theory is in various situations.

The actual test consisted of a survey given to 127 individuals, which included a booklet made of three parts (parts A, B, and C), and a separate answer sheet. In part A, the participants were shown 10 triplets of cars (three pictures per page), and were asked to rank these cars in order of how well they liked them. By having certain pictures of cars reappear throughout the triplets, it was possible to test for transitivity. For example, if a Mustang (car A) and a Pathfinder (car B) were together in a triplet on one page, and the same Pathfinder (car B) and a Honda Accord (car C) were together in a different triplet, the Mustang (car A) and the Accord (car C) would be together in a separate triplet to test for transitivity. If the person prefers the Mustang over the Pathfinder, and the Pathfinder over the Accord, then if they are transitive they will choose the Mustang over the Accord (if A>B and B>C, then A>C). There were three of these tests performed by each person in part A with pictures of cars. Parts B and C were set up exactly the same, except that scenic landscape pictures, and hypothetical bets were used in place of cars.

After the surveys were administered, the results were entered into a computer program that summarized the data and tested for inconsistencies. Parts from 127 surveys were used. The mean age of the participants was 21, they averaged 1.5 years of post-high school education, and 50% of them had studied economics or logic before. There were 78 females and 49 males. It is important to remember that the results of this survey apply to this subgroup of the population and not the entire human population.

As mentioned before, parts A, B, and C tested for transitivity using the same procedure, but with different subject matter, making cross-comparisons possible. The first part dealt with cars, a marketable good that people are used to choosing between and comparing. The second part compared scenic pictures, a non-marketable good that most people generally do not rank, or choose between. The third part matched up bets, which require comparisons on two plains, probabilities and dollars won. The results were as follows: part A respondents were intransitive in 11.9% of the cases (n=504), part B was 12.6% (n=508), and part C was 14.7% (n=380).

It is also interesting to note the actual number of people who were intransitive in each of the sections. This is different than the percent of intransitive cases because many people are intransitive more than once per section. The results were 34.1%, 33.9%, and 42.1% for parts A, B, and C respectively (n=127). If we combine the sections, we find that 67.72% of all participants were  intransitive in at least one of the three sections. It is apparent that intransitivity does not only occur among isolated individuals.

In summary, the results of this survey establish that a significant percentage of the participants were not consistent in their decision making. More specifically, around 2/3rd of those surveyed were intransitive at least once. However, they were only intransitive around 13% of the time. In addition, the participants displayed significantly different levels of transitivity with different subject matter.

From these results, several tentative conclusions can be drawn which shed light on the consistency of human behavior and the possible limitations of economics. It was shown that the participants were the most transitive and rational with respect to cars, which are highly marketable and easy to compare. This implies that the amount of intransitivity may not affect economic theories that focus on highly marketable goods. As a general and useful model, they may still be valid. Although most people surveyed were intransitive some of the time, the actual level of intransitivity was low enough that the transitivity assumption would still lead to a close approximation. In fact, the benefits gained from a more precise model that incorporates intransitive behavior are almost certainly no greater than the costs of abandoning the current theories that assume transitivity.

However, because of the nature of surveys, there is always a possibility that the results do not directly relate to the real world. It is possible that people would be more transitive in a real life setting where the stakes are higher. However, other important factors are common in the real world that were simplified in this survey, which may lead to the conclusion that people are less transitive than this survey implies. One important example is the complexity of the problem. As mentioned earlier, the section that included a hypothetical bet (by far the most complicated section) instigated more intransitivity than any other section. This implies that as the question’s complexity is increased, the level of intransitivity also increases. In the real world, problems are often more complex than this survey was, leading us to believe that people may be more intransitive in a natural setting than this survey implies. Because of these competing factors, it is not clear if intransitivity is more or less prevalent in this survey than in the real world. Future research should establish the relationship between surveys and reality by determining the relative significance of factors such as those previously mentioned.

In conclusion, I found strong evidence that most of the participants in the survey were irrational (intransitive) in some of their decisions. However, the level of intransitivity is not great enough to warrant the abandonment of current economic theory. Economists have always endeavored to create simplified models that reveal basic truths about society. In this case, the accuracy that is lost by assuming that people are transitive is more than made up for in the simplicity and versatility of the theory. However, it is vital that economists recognize the imprecision of some of their underlying assumptions and do not become dogmatic in their beliefs.