Trading the Rights to Perform Decision Tasks in the “Red Hat Puzzle”: An Experiment

Paper number: 14/08

Paper date: May 14, 2014

Year: 2014

Paper Category: Discussion Paper

Authors

Lawrence C. Y. Choo

Abstract

This paper investigates the conventional wisdom that markets allocate the “rights” for performing decisional tasks to those who are better abled to perform them. Our experiment uses the decision tasks in a game, motivated by Littlewood (1953) “Red Hat Puzzle”, where performing each task requires logical and epistemological reasoning. Markets are introduced, where subjects are permitted to trade their rights for performing the tasks in the game. Contrary to the conventional wisdom, aggregated performances in this treatment were found to be significantly worse than our control treatments, where subjects were not permitted to trade such rights. Markets often resulted in the rights being allocated to subjects who performed worse in the decisional tasks.

Keywords: Game Theory, Trading Markets, Experimental Economics, Red Hat Puzzle
JEL Classifications: C92, C72, G02, G12

Trading the Rights to Perform Decision Tasks in the “Red Hat Puzzle”: An Experiment Trading the Rights to Perform Decision Tasks in the “Red Hat Puzzle”: An Experiment