The Review of Economic Studies Ltd.

The Experimental Determination of Indifference Curves

Author(s): K. R. MacCrimmon and M. Toda
Source: The Review of Economic Studies, Vol. 36, No. 4 (Oct., 1969), pp. 433-451
Published by: The Review of Economic Studies Ltd.
Stable URL: http://www.jstor.org/stable/2296469
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 The Experimental Determination
of
Indifference Curves'
I. INTRODUCTION
While indifference curves have been utilized in a large number of theoretical studies,
their empirical derivation has received little attention. In this paper we suggest a pro-
cedure for experimentally determining indifference curves. Individuals are taught to
represent their preferences graphically. They are motivated to give their true preferences
by basing the payoff received on the choices made or implied. Techniques for simplifying
the number of commodity bundles to be considered are introduced where appropriate.
We present some experimental data to show the ease with which indifference curves
can be obtained. Two sets of twocommodity bundleswere used. In the first experiment the
commodities were money and ball point pens-commodities for which it is reasonable to
assume that larger amounts are not less preferred than smaller amounts. In the second
experiment the commodities were money and French pastries, and since the pastries had
to be eaten on the spot a satiation level might be expected to exist. As we shall see these
two different sets of commodities yield quite different indifference curves. We especially
focus on the extent to which the curves satisfy the commonly postulated properties of
indifference curves.

II. BACKGROUND
In the theory of consumer demand, indifference curves can serve to represent prefer-
ences. Pareto [9] first showed that demand functions could be obtained just as readily
from indifference curves as from the more restrictive concept of marginal utility. Notable
subsequent contributions were made by Slutsky [13], Hicks and Allen [4], and Hicks [3],
among others. Even revealed preference (Samuelson [11]), which seeks to obviate in-
difference curves, has its counterpart in the behaviour lines of Little [7]. For more details
see Houthakker [6].
Observation of work in consumer demand theory makes it clear that interest in
indifference curves is certainly secondary to interest in demand curves. Economists,
however, have generally rejected Cassel's position [2] that we should start with demand
functions and leave any study of preferences to the field of psychology. That is, this
position has been rejected in theoretical work, but on the empirical side we find many
empirical demand studies and hardly any attention devoted to the empirical determination
of indifference curves. It is to this imbalance that we direct this paper.
The lack of empirical work in this area is especially unfortunate because indifference
curves are not solely of interest in consumer demand theory. In many non-market choice
situations, where a demand function is a meaningless concept, it is useful to represent
preferences by indifference curves (e.g., Hitch and McKean [5]).
1 This work was supportedin part by contractsor grantfrom the Ford Foundation,National Science
Foundation, and Office of Naval Research (ContractNo. 233 (75)) to the Western ManagementScience
Institute, Universityof California,Los Angeles. We are gratefulto Sid Adelman, David Hitchcock, and
FrederickTimson for suggestionson the design of these experimentsand for their help in carryingthem
out. We also wish to acknowledgethe helpfulcommentsof Jacob Marschak,John Basslerand LesterLave.
433
434 REVIEW OF ECONOMIC STUDIES

Particular properties are generally assumed for indifferencecurves. One such property
is the non-intersection of indifference curves. Intersection would imply intransitivity of
the indifference relation and we would generally call such preferences inconsistent. A
second property relates to the desirability of the commodities considered. If we assume
the commodities are desirable in any amount, then in order to get more of one commodity
we would be willing to give up some amount of a second commodity, and hence the in-
difference curves would have a negative slope. A third property is an empirical matter.
The indifference curves are assumed to be convex to the origin. This implies that the
marginal rate at which you would give up one commodity for a second decreases as the
amount of the second commodity increases, i.e., the marginal rate of substitution diminishes.
In a later section we shall discuss each of these properties in the context of our experimental
data.

III. PREVIOUS EMPIRICAL STUDIES

Empirical determinations of indifference curves may be based on (1) actual expenditure
data, and (2) experimental data. An observation of the expenditures of a single economic
unit at a point in time provides a single observation for the indifference map (viz. the
relative prices yield the slope of the indifference curve at the quantities taken). In order
to build up a reasonable picture of the map, it is necessary to study one economic unit
over a long period of time and in a variety of price/income situations (all the while assuming
stability of tastes). Or alternatively, one could study a number of economic units at one
period of time in a variety of price/income situations and assume that the tastes of all
units are the same. More realistically, the studies could be both cross-sectional and
temporal.
Actual expenditure studies, though, do not attempt to construct indifference curves.
The emphasis is completely on the demand functions and their characteristics. However,
from the classic studies of Schultz [12], and those of Wold with Jureen [18], Stone et al.
[14] and others, some characteristics of a composite indifference map can be inferred.
Indifference curves derived from actual expenditures would be much more convincing
than those obtained experimentally. The prime reason perhaps is that when the consumer
spends his own money to obtain some commodity he wants, we do not have to worry
about his motivation for making a careful choice. With experiments, however, motivation
can be a serious problem. There are some advantages, though, to an experimental
approach. The most obvious one is that the experimenter has control over the enrivon-
ment and can more assuredly hold to ceteris paribus conditions. This suggests that experi-
ments may offer some intriguing possibilities for determining indifference curves. We
have been able to find only two previous studies, an early one by Thurstone [15] and
another by Rousseas and Hart [10].
The pioneering work on determining indifference curves experimentallywas performed
by the psychologist Thurstone, stimulated by conversations with Schultz. Thurstone
used three different commodities: hats, pairs of shoes, and overcoats. By asking his
subject which bundles of hats and shoes she preferred to a reference bundle, he built up
two regions-one in which the reference bundle was preferred and the other in which the
bundles, represented by the points offered, were preferred. Thurstone then assumed
5 postulates of behaviour in such situations and this allowed him to fit a curve, between
the two regions, passing through the reference point. The principal postulate was the
equivalent of Fechner's logarithmic law and constrained the indifference curve to be
hyperbolic. This hyperbolic curve was fit to the data by considering preference inversions
and by using the method of averages. Four such indifference curves were obtained for
the hat-shoes commodity bundles. Thurstone used a similar procedure to obtain 4 in-
difference curves for hats and overcoats. He then attempted to validate his procedures
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 435

by predicting indifference curves for shoes and overcoats and comparing them to experi-
mentally derived data.
Thurstone's experiment can be criticized on a number of grounds. First, hats, shoes,
and overcoats are not the types of commodities a subject (even a female subject) would
reasonably acquire a large number of. The maximum number he used of each item was
24, and the average minimum number of one commodity in each bundle was 10. Second,
the subject's choice was completely hypothetical-she realized that she was not going to
get 16 overcoats and 14 hats, or the like. Third, the problem size is overwhelming: for
each curve she was required to make 256 comparisons (between a proposed bundle and
the reference bundle). Fourth, Thurstone's assumptions (i.e., postulates) are questionable.
It would seem more desirable to observe and not specify such things as the shape of the
indifference curve. (In fact, Thurstone may have done this by forming the postulates
ex post.) Other more minor points such as the desirability for more than one subject,
the method of curve fitting, and the assumptions underlying his attempted validation could
also be mentioned.
However, the fact that Thurstone was the first to experimentally derive indifference
curves should not be lost among the criticisms. He also developed the feature of com-
paring bundles with a reference bundle, thus building up the preferredand the not preferred
spaces vis-a-vis the reference bundle. This seems like a very useful way of having the
subject determine the indifference line. In fact we applied this technique quite independ-
ently in our experiment and did not learn until after the initial writeup of our results that
it had been developed and used by Thurstone more than 35 years earlier.
Rousseas and Hart obtained indifference curves for eggs and bacon. They offered
each of 67 subjects 3 alternative bundles of eggs and bacon and requested a ranking of
them in order of preference. The top ranked bundle apparently had to be eaten. Each
subject made only one such ranking since it was thought that a series of choices would
impose too much strain on a single individual. The commodity space considered was
from 0 to 5 eggs and 0 to 5 strips of bacon. It was assumed that a saturation point would
occur between 2 and 3 eggs and 2 and 3 strips of bacon. By drawing lines at 2-5 eggs
and 2-5 strips of bacon, the commodity space was divided into quadrants with a saturation
region at a corner of each quadrant. Eighteen commodity bundles were symmetrically
chosen in each quadrant but only 60 of these 72 different patterns were presented. Seven
choice patterns were duplicated by presenting them to a second subject.
By assuming homogeneity of tastes for these commodities, Rousseas and Hart pro-
ceeded to construct indifference curves from these rankings, thus building up a composite
indifference map. Their procedure involved forming saturation vectors based on the
direction of preference between the first ranked preference and the second and third.
Slope vectors were formed based on the direction of the second and third choices. Those
saturation and slope vectors consistent with the assumed saturation and convexity,
respectively, were used as the basis for constructing the indifference curves. The experi-
ment was rerun one month later with the same subjects.
A main weakness in the Rousseas and Hart experiment was the assumption of homo-
geneity of tastes. Most of the duplicate rankings in an experiment were not identical,
and the listing of ideal combinations of bacon and eggs requested after the second experi-
ment was over, were quite varied. This latter information also makes the particular
saturation area assumed somewhat questionable. Another weakness was the degree of
arbitrariness in this positioning of the slope vectors and the subsequent construction of
indifference curves through these quite arbitrarily placed fragments-even after the
anomalous cases had been eliminated.
A very useful aspect of the Rousseas and Hart study, though, was the acquisition
of preference data at two distinct time periods. Some exactly duplicated choice alter-
natives gave information on the stability of preferences. There is also stability data on
symmetrically presented choices but the interpretation of these depends on the particular
436 REVIEW OF ECONOMIC STUDIES

saturationhypothesis. Another useful aspect of these experimentswas the forced con-

sumptionof the commodities-a conditionthat hopefullycontributedto a more careful
considerationby the subject. Althoughthe use of slope vectorsand the subsequentcurve
fitting procedureis very cumbersomeas an experimentalmethod, it does have some
propertiesof the statisticalfittingthat would be necessarywith marketdata and perhaps
servesas a bridgebetweenindifferencecurvesderivedfrom experimentsand those derived
from actualexpenditures.
In a very clear expositoryarticle,Wallis and Friedman[17] recordtheir skepticism
about the usefulnessof indifferencecurve analysison empiricaldata-especially experi-
mentaldata. After consideringthe Thurstoneexperiment,Wallisand Friedmanconclude
that " it is probablynot possibleto designa satisfactoryexperimentfor derivingindifference
curvesfrom economicstimuliappliedto humanbeings." The basis for this strongstate-
mentis the following: (1) hypotheticalchoicesdo not elicit actualpreferences;(2) a long
period of time and many differentsituationsmust be observedto obtain preferences;
and (3) " economicphenomenaare so integrala part of life that effectiveexperimentation
would requirecontrol of virtuallythe entireexistenceof the subject."
While recognizingthe issues raised as important,we neverthelessdisagreewith the
conclusionof Wallis and Friedman. The first concerncan be handledby the conditions
on the commoditiesconsidered(e.g., forced consumption)and by the payoff procedure
used. We feel that the methodwe use is particularlyeffectivein this respect. The second
point relatesto the numberof choices the subjectcan make at a given time. This would
seemto be a more seriousproblemin studiesof actualexpendituresthanwith experiments
in which the choices to be consideredare underthe control of the experimenterand can
be variedwidely. Clearly,if after makinga choice the subjectreceivesthe commodities
immediately,his future preferenceswill be affectedunless we wait some time until his
stock is down to the previous level. Such intermittentpayoffs, however, do not have
to be part of a well designedexperiment,and here too our payoff procedureforcesthe
subjectto carefullyconsidera variety of possiblebundlesat any given time even though
he knows he will only receiveone of them. We also introducetechniquesto drastically
reducethe numberof bundlesthat must be considered. The third concernof Wallis and
Friedmanis to some extentcoveredin the other two but, to the extentthatit refersto the
ceterisparibusquestion,it too can be handledin experiments. The experimentercan not
only impose some controlover the subject'sstate duringthe experiment(e.g., by deferring
all payoffsuntil the conclusion),but can also exert some control over the subject'sstate
at the beginningof the experimentby selection procedures,participationprerequisites
(e.g., skippinglunch),or even the timingand location of the experiment.
Since we do use proceduresto resolve the problemsraised, we feel that we have
satisfactorilyperformedan experimentconstructingindifferencecurves. The procedure
we use can be readilyunderstoodby subjectsand obtainscontinuousindifferencecurves
very efficiently. One issue implicit in the Wallis and Friedmandiscussionthat we do
not treatin this paperis the stabilityof preferencesovertime and in a varietyof situations.
This would be a largescale study,a prerequisiteto whichwould be the developmentof an
effectiveway to measurepreferencessuch as we feel we presenthere. Let us now describe
this procedurein more detail.

IV. INDIFFERENCE CURVE DETERMINATION PROCEDURE

Considervariousbundlesof two commoditiesX and Y,representedby the commodity
space in Fig. 1. Let us considerP0 as a referencepoint. We wish to determinethe in-
differencecurvepassingthroughPO. This is equivalentto determiningtwo regionswhose
common boundaryis the indifferencecurve. These regions are: (1) an accept region,
abbreviated" A ", of all the pointsto whichPOis not preferred(i.e., theywouldbe accepted
in lieu of PO), and (2) a reject region, abbreviated" R ", of all the points to which PO is
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 437

preferred (i.e., they would be rejected in favour of PO). Thus, if we can determine for each
point in the commodity space whether it would be taken instead of PO (the A region),
or whether PO would be taken instead of it (the R region), then the boundary separating
the two regions is the indifference curve we seek.'
There are two major difficulties with this as an experimental procedure. First, what
motivation is there for a person to reveal his true preferences? Why should he carefully
draw the indifference curve? Second, how can a person be expected to consider every, or
even many, points in the commodity space? To obviate these questions we need to develop
some procedures that will lead to true preference being exhibited, and will reduce the
number of commodity bundles to be considered. We shall examine each of these aspects
in turn.

PO
0o X
FIGURE 1

Payoff Procedures
We attempt to motivate a person to reflect his true preferences by making his final
outcome (i.e., payoff) contingent on the indifference curve he has drawn. For example,
let us assume that he has drawn the curve of Fig. 2. We then tell him that we are prepared
to give him PO-or perhaps something he likes more. We do this by selecting at random
a point in the commodity space we are considering. If the point, say PA, is in the A region,
we give him PA instead of PO(since he has indicated that he prefers PA to PO). If, however,
the point, say PR, is in the R region, we give him PO(since he has indicated that he prefers
POto PR). Thus, this payoff method forces him to be sure that he would really prefer PO
to each possible PR.
There is, then, the motivation to draw the indifference curve as carefully as he can to
mirror his true preferences in each part of the space since he does not know in advance
in which part of the space the randomly selected point will fall. A simplified form of this
method was used by Becker, DeGroot, and Marschak [1] in measuring the utility of money.
A theoretical consideration of various general forms of the method is given in Toda and
MacCrimmon [16].
1 As we have definedit, the boundarylies within A. Clearly,by modifyingthe preferencedefinitions
we could alternativelylocate the points of indifferencesolely in R, in both A and R, or in neitherA nor R.
Any of these would suffice; we are only interestedin establishinga boundary.
438 REVIEW OF ECONOMIC STUDIES

Complexity ReductionProcedures
In attemptingto reducethe numberof commoditybundlesto be consideredwe can
make use of the knowledgethat more of some (not all) commoditiescan be expectedto
be preferredto less (or at least is not less preferred). By utilizingthis informationand by

\PA

R A

i PR\
P0 x
FiGURE 2

proceedingsequentially,i.e., by makingthe pointsexamineddependenton previouschoices,

we can substantiallyreducethe complexityof the problem.
Let us assumefor the momentthat for both X and Y, more of the commodityis pre-
ferredto less. (As we shall see, not only can this assumptionbe testedat each pointin the
process,but procedurescan also be developedwhen it does not hold).

P1

PO x
FiGURE 3
Again we take POas our referencepoint, so assumingmore of X is preferredto less
and more of Y is preferredto less implies that all points above and to the right of PO
are in the A region. That is, they yield eithermore X or more Y, or more of both. Let
us denote (sub-regionsof) the A regionby shading,as in Fig. 3. Considernow pointP1.
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 439

The person is asked if he would take P1 instead of P0. If he would not, then P1 is a point
in the R region. We also know, however, that if P1 is in the R region then any bundle
that offers less of X without offering more of Y, or conversely, is also in the R region (in
that it is less preferred than P1). Thus, all points to the left of and below a point in the
R region are also in the R region. Let us denote (sub-regions of) the R region by cross-
hatching.
Now consider bundle P2. Suppose that the person prefers P2 to PO. Then P2 and
all points above and to the right of it are in the A region. We can proceed in this fashion
by asking the person to consider new points not yet in the A or R region. By proceeding
sequentially we can build up a number of A and R sub-regions and thus put tighter and
tighter constraints on where the indifference curve may lie. Suppose that after considering
a number of such points we have developed the A and R regions of Fig. 4. At this point

x
Po
FiGURE 4

it is probably quite clear where the indifference curve lies and the person can probably
draw it in directly (say, the dashed line). If he still is not sure of where the curve should
lie, he simply considers more points-those not yet in an A or R sub-region.
This method is, of course, particularly effective in reducing problem complexity when
we know that more of both X and Y is preferred to less. We can, however, use a less
powerful procedure when for only one of the commodities can we assume more is pre-
ferred to less. Suppose just X has this property, so that for Y more may even be less
preferred than less. That is, a saturation point is reached for Y. In this case instead
of drawing A and R rectangles above and to the right and below and to the left, respectively,
we now draw an A line to the right of an A point and an R line to the left of an R point.
(If the roles of X and Y were interchanged the lines would be drawn vertically.) This also
reduces the number of points to be considered with reference to P0 but not as effectively
as the former procedure. After considering a number of points the lines may look as in
Fig. 5. The indifference curve may then be drawn in directly (say, the dashed line).
When we cannot assume that more is preferred to less for either commodity then we
cannot use a space reduction procedure and must consequently consider a great number of
points. If we have knowledge of where the saturation point might occur (as assumed by
Rousseas and Hart, for example) we can use a combination of the line and the rectangle
procedure up to the saturation level and then past it-but we must be quite sure of the
saturation level. Thus, the problem reduction techniques can be used even when both
commodities can reach a saturation as long as we know where this occurs.
440 REVIEW OF ECONOMIC STUDIES

The procedures described are, of course, not restricted to obtaining only one in-
difference curve. Reference points other than P0 can be selected as new reference points
and we can obtain a series of indifference curves directly drawn by the individual whose
preferences we are studying.

PO 7
P0X
FIGURE 5

V. EXPERIMENTAL CONDITIONS AND RESULTS

Conditions
We used the procedure described in the previous section to obtain indifference curves
for 7 undergraduates in an experiment performed at the University of California, Los
Angeles in May 1967. Two of the subjects were female; all had majors in mathematics,
engineering, or economics. In recruiting the subjects we specified that each should have
had 4 university level courses in mathematics. This was to avoid any concern about the
subject's ability to draw and understand graphs. Undoubtedly it was overly cautious,
since mathematically naive subjects can understand the necessary rudiments of drawing
the rectangles or lines.
Prior to the regular experiments we had a training session of about 2 hours. During
this time the procedure for forming A and R rectangles and lines, selecting points for
comparison with P0, and the payoff method were explained to the subjects.' The subjects
also practised drawing indifference curves with money and pencils as commodities (to
which the rectangle method was applied). The subject first drew an indifference curve
through the reference point of $3 (and no pencils) and then on a separate sheet of graph
paper drew an indifference curve through the point $5 (and no pencils). Both curves
were then given to the subject and he was asked to transfer the 2 curves to a third sheet of
graph paper. He was told that he could re-position the lines on the joint sheet if he felt
that upon reflection the original position did not reflect his true preferences. The im-
plication of intersecting lines (i.e., in this case the willingness to substitute $5 for $3)
was explained, and he was told that if his lines intersected he could redraw them if he
wished. After the curves had been drawn on the joint graph to his satisfaction, and after
any questions were answered, one of the lines was chosen as a reference line, a random
number was selected, and a payoff determination was made. This payoff, along with
another one, involved a payment of $6 to each subject.
1 A verbatimaccount of the instructionsand proceduresis too long to presenthere but the authors
will gladly send a copy to anyone interested. Let us also note here that slightlymore than half of the two
hour training session was devoted to training in drawing indifferencecurves in an equi-probablewager
space. This aspect will not be discussedhere.
 EXPERIMENTALDETERMINATIONOF INDIFFERENCECURVES 441
During the first regularexperimentalsession money and ball point pens were the
commoditiesused. The pens had a retail selling price of $.19. The commodityspace
consideredran from $0 to $25 and from 0 to 180 pens. We assumedthat more of each
commoditywould be preferred(or indifferent)to less and the rectangleprocedurewas
used; no subjectlater indicatedthat this assumptionwas inappropriate, The following
referencepoints involving only money were presentedin the randomizedorder: $6,
$13, $4, $10, $2, $8, and $20. After using the rectanglemethodand drawingeach of the
7 indifferencecurveson a separategraph,we askedthe subjectto copy all 7 lines onto one
graph. They were allowedto re-positionthe lines on this joint graphif they intersected
or if the subjectshad secondthoughtsabout the correctposition of the lines. The payoff
determinationwas deferreduntil afterthe secondsession. The sets of indifferencecurves
for the 7 subjectswill be discussedbelow.
In the secondsession,held on the followingday, moneyand Frenchpastrieswerethe
commodities used, with the stipulation that the pastries had to be consumed in the
laboratorybefore the subject received any other payoff. Thus one might expect that
more pastriesare not necessarilypreferredto less, and so the line method, ratherthan
the rectanglemethod,was used. The commodityspacerangedfrom $0 to $25 and from
0 to 14 pastries. The pastry scalewas shown in fifthsof a pastry. The referencepoints
were presentedin the randomizedorder: $4, $2, $1, and $6. The same construction
procedureas in the first sessionwas followed,that is, all lines werefirstdrawnon separate
sheets of graph paper and then later drawn on a joint graph. The sets of indifference
curvesfrom this sessionwill also be discussedbelow.
Whenthe finalpastrydeterminationwas made,the point selectedfell into the A region
of 5 of the 7 subjects. Thus,these 5 subjects(the 5 males)had to eat an averageof slightly
more than 4 whole pastriesin addition to receivingmoney. Not until the pastrieswere
eaten was the money paid. The payoff determinationfor the dollarsand pens case was
delayeduntil this point so that the subjects'preferenceswith respectto moneywould not
be influenced(by us) duringthe experiment,and the delayedpayoff servedas a further
incentivefor fulfillingthe obligationto eat the pastries.
Each experimentalsession took about 2 hours, but only half this time was devoted
to the constructionof indifferencecurves for commodity bundles as describedabove.
'Thesubjectsseemedto have no difficultyin drawingthe indifferencecurvesand on the
whole seemed quite confidentin the curves they had drawn. To test their preferences,
at the end of both sessions we collected their indifferencecurve graphs and presented
each subjectwith pairs of commoditybundles written on cards, and requestedthat he
selectthe one bundleon eachcardthathe preferred. Thesepairswereobtainedindividually
for each subjectby: (1) taking points on each side of an indifferenceline (about $.50
away from the line) at differentlevels of the indifferenceline, and (2) takingpoints on two
adjacentlines. At least one test was made about each line, and when supplementedwith
points from adjacentlines therewere a total of 12 money/penand 9 money/pastrychoices
altogether. The resultsare discussedbelow underthe appropriatecommoditypair.
Results
The results of each experimentwill be discussed separately. We are especially
interestedin informationon the mainpropertiesusuallypostulatedfor indifferencecurves,
that is: (1) non-intersection,(2) generalnegativeslope, and (3) convexityto the origin.
The sets of indifferencecurvesin Figs. 6 and 7 were obtainedby tracingthe curvesexactly
as they were drawnby the subjects. Subjects2 and 4 are female.
The indifferencecurves for money/penbundles for the seven subjectsare given in
Fig. 6. Note that none of the curves, for a given subject,intersect. When the curves
drawn originallyon the individualgraphsare superimposedon each other, they also do
not intersect. Hencethe non-intersectionis not due to a changemadeby the subjectwhen
he redrewhis curveson the joint graph.
442 REVIEW OF ECONOMIC STUDIES

20 60 1200
P 180- 140- 160. 100. 140. 160.

l $2\

S4
INDIFFERENCE
INOIFFERENCE
5
CURV,ES
CURVES
FOR
a6
$8 FOR

0
NOBEl/PEN
ls MONEY/PEN
10

BUNDLES
BUNDLES
S3\ FOR
D0OLLAR FOR
DOLLARS S

SUBJECT
15
3 SUBJECT
1

2
26

25

140 160
'Or 180-
$2
S
$

\\ $\ INOIFfERENCE
-

CURVES
SB
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$10
MONEY/PEN
X
$1
BUNDLES

9BI0.ARS fOR
\1

SUBJECT
15 2 INDIFFERE
MONEY/PEN

$20
CURVES
2
BUNDLES

FIGURE 6
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 443

20 40- 60- 80- 100- 120- 140- 160- 40 80

8 O
60- 100- 120- 140. 160_

SO X
I sO

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$s4
INOIFfERENCE
180_l 34 INOIFfENENCE

SO6 5
CURVES ISO
CURVES

5 FOR fOR
7
Iss
8
010
P
MONEY/PEN MONEY/PEN
1d $10o
10
i
BUNOLES 1
BUNDLES
013
DOLL1AR FOR 12
S Fok
OOLLARS$1s3
13

SUBJECT 14 suooEjCd
15 7
15

16

17

18'
$20
1

26 $20
20

180'.

25
25

20 40- 6o- 80. 1200 140- 160- 80 20. 40- 60- 80

140- i6o-
0 0
S2
5

54

INOIFFERENCE INOIFFERENCE
R
5 5 6R 120l
CURVES CURVES
R
FOR FOR
$R

50
010
MONEY/PEN MONEY/PEN
10 10
1
RUNOLES 8UNOLES
013
FOR OOLLARS
DOLLARS FOR

SUBJECT SUBJECT
6 4
15 15

020

20 20

25

FIGURE 6
 444 REVIEW OF ECONOMIC STUDIES

O
4 8 14
12-
51

52

2
S INOIFFERENCE INDIFFERENCE

5 St
CURVES CURVES
6SA
FOR FOR
56
L6

MONEY/PASTRY MONEY/PASTRY
10

SUNOLES BUNOLES
OOLLARS DOLLARS
FOR FOR

SUBJECT SUBJECT
3 15 t

00

25

0 14

12
INDIFFERENCE

5 82

CURVES

54 FOR FOR

10 MONEY/PASTRY

BUNDLES
DOLLARS
FOR

SU8JECT
INDIFFEREN
15
2 MONEY/PASTRY

CURVES
20
BUNDLES

25

FIGURE 7
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 445

12
0 O
Si
S2

Si INDIFFERENCE
INDIFFERENCE

5 5
DV CURVES CURVES

FOB FOR

MORES/PASTRY 10 MONEY/PASTRY
10

BUNDLES BUNDLES
DOLLAROS DOLLARS
FOB FOR

1 SUBJECT 5 SUBJECT
7 5

2.0 20

2A a5

12 6
0 -
S
Si

S2

Si
INDIFFERENCE INDIFFERENCE

5
56 CURVES CURVES

FOR FOR

10 MONEY/PASTRY MONEY/PASTRY

BUNDLES DOLLARS BUNDLES

DOLLARS
FOR FOR

SUBJECT SU8JECT
15 Is
6 4
/

ao 02
ao

142.

as 25

FIGURE 7
446 REVIEW OF ECONOMIC STUDIES

All the curves have a general negative slope over their domain. That is, to maintain
indifference as the number of pens is decreased the number of dollars must be increased.
This relation is true in the strong form just expressed for all subjects except S5 whose
curves are step functions (" I assume I can sell them only in units of ten "), but even S5's
curves are non-increasing as we move from left to right.
Another commonly postulated property of indifference curves is that they are convex
to the origin. This can also be stated as a diminishing marginal rate of substitution of
money for pens as one moves to the right. Other than S5's step functions, the only major
example of non-convexity is in the $20 line of S6. The upper part of this curve is distinctly
concave. This may be due to careless thought about his preferences. Further reflection
might have led to a redrawing since an examination of the individual graphs reveals that
there was a similar concave region at the top of his $13 line, and this was changed when
transferred to the joint graph. Even though these are the only non-convex regions, it
should be noted that the degree of convexity is not high, and that most graphs contain
long linear segments.
TABLE I

Commoditybundle Money/pens Money/pastries

Number of pairs 12 9
Subject Si S3 S5 S2
Number of inconsistencies 1 2 1 2
Bundle preferred ($5.50, 100) ($1.80, 20) ($3.60, 25) ($7.50, 40) ($24, 21) ($3.25, A)
Bundle rejected ($10, 20) ($3.90, 5) ($4.50, 100) ($0, 145) ($7.75, 1) ($5.75, 15)
Correspondingcurve(s) $10 $2, $4 $4, $6 $13 $1, $2, $4 $2

The lack of interest by most subjects in large numbers of pens is evident from examin-
ing the slopes of the curves in their upper regions (say above 50 pens). The curves for
subjects S2, S3, S4 and S7 are all very steep-the marginal rate of substitution is at least
60 pens per dollar. The retail price of the pens being $.19 gives a price exchange ratio of
5 pens per dollar. These subjects estimated the market price (independently) as $.30,
$.19, $.49 and $.10. respectively. Subjects SI, S5 and S6 have less steeply sloped curves,
with a marginal rate of substitution of less than 25 pens per dollar in this region. They
too, of course, are much higher than the relative price. These subjects estimated the price
at $.14, $.20, and $10, so the relatively higher value they place on large numbers of pens
is not due to their perception of a higher retail price (for possible resale) than the other
group. Some subjects explicitly stated their disintererest in the pens (S2: " Those pens
have ruined 2 dresses of mine.").
One might expect a lower marginal rate of substitution of money for pens, for a fixed
number of pens, at higher dollar values. This implies that the right-most curves might be
expected to be more convex at larger money amounts. If this characteristic is true it is
not particularly pronounced, and is definitely contradicted by the $20 line of S2.
The inconsistencies between the indifference curves (on the joint graph) and the pair-
wise comparisons are given for money/pen bundles in the left side of Table I. The table
indicates the pairs in which inconsistencies occurred and the line from (or around) which
the pairs were constructed. Note that 3 of the seven subjects had inconsistencies-S3
had two inconsistencies. There were only 4 inconsistent pairwise choices in the 84 (7
subjects times 12 pairs per subject) pairs presented. The choice of a dominated bundle
in the second inconsistency of S3 suggests carelessness in considering the choices.
The indifference curves for money/pastry bundles are given in Fig. 7. The conditions
of the experiment (i.e., forced consumption of pastries) yield the unconventional slopes
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 447

shown. The curves do not have a general negative slope, and in fact only at the extreme
lower part of 5 of the 7 sets of curves is it even close to negative. The curves for S2 and
S4, the female subjects, slope positively from the start, meaning that you have to pay them
to induce them to eat even a part of a pastry.
The beginning of the positive slope indicates a point of relative satiation; that is, up
to this number of pastries the subjects are willing to forego some money to eat the pastries
but after this point they will consume more pastries only if they are paid for it. For the
5 male subjects this occurs at about 3 pastries. For four subjects, S2, S4, S5 and S6, a
level of absolute satiation is apparently reached in that no more money (in the domain
considered) could induce them to eat more pastries (although there does seem to be a slight
upward bend at the right end for S2). Thus the indifference curves become horizontal at
between 2 and 6 pastries for the females (S2 and S4) and between 8 to 14 for the males
(S5 and S6). The curves for SI, S3 and S7, on the other hand, tend to continually increase
over the range of pastries offered.
In general the curves are increasing at a decreasing rate. The only regular concavity
from the left side is found in the curves for S3 in the whole region of their positive slope,
and the curves for SI at the top. The female subjects both exhibit strange preferences-
note the concavity until the satiation level abruptly terminates it in the case of S2, and the
concavity introduced by the unusual step-type function for satiation levels in S4. Even
though S7's curves are not concave the steep linear slope should be noted. Apparently
SI, S3 and S7 are not near any absolute satiation level.
Even though no curves cross for any subject, the intersection of all 4 curves at their
right end for S2, S4 and S6 causes obvious problems. By this joining-up of the curves
they are implcitly stating their indifference between $1 and $6. It would have been useful
to give them pairwise comparisons to bring this out; however, it was not done in this
experiment. On the other hand, the joining-up may reflect only an inability to represent
graphically the minute differences in preference. On the separate graphs two of the other
four subjects had drawn lines that crossed (the $1, $2 and $4 curves crossed each other
for SI, and the $4 curve crossed the $2 and $6 curve for S3), but in transposing these
curves to the joint graph these subjects modified the regions with the intersections.
Only one subject had inconsistencies between the indifference curves and the pairwise
comparisons-S2 had 2 inconsistencies. Note, in Table I, that both inconsistencies involved
pastries very close to 2, and so these inconsistencies may indicate carelessly considered
preferences-or perhaps an indifference " band "-in this region, since the curves not
only merge at 2 pastries but seem to have a slight upward bend.

VI. SUMMARY AND CONCLUSIONS

The primary purpose of this paper is to describe and present some results of a pro-
cedure for efficiently obtaining indifference curves. The procedure involves training an
individual to draw his own indifference curves for two-commodity bundles, and by basing
his payoff on the curves he has drawn he is motivated to represent his true preferences.
Making use of the monotonicity of commodity preferences, when appropriate, considerably
reduces the complexity of the task. In this section we shall summarize and evaluate the
main features of the indifference curve determination procedure and the experimental
design-noting some possible areas for improvement in each. In the process some
implications of the experimental results will be developed, and we shall consider the uses
for various elements of the procedure in different experiments on choices and also non-
experimental decision making situations.
The payoff procedure used is a powerful method for inducing the individual to give
his true preferences. After some explanation it was easily understood by the subjects
and evidence of its effectiveness comes from three basic sources. First, the indifference
2F
448 REVIEW OF ECONOMIC STUDIES

curves drawn on the separate graphs are very consistent when superimposed. Second, of
the 21 consistency checks given to each subject, and chosen to be difficult (i.e., very close
to an indifference line), an average of less than one choice per subject was actually in-
consistent with the appropriate indifference curve. Third, none of the subjects seemed
to display any post-payoff dissonance when the actual payoffs were made, that is, even
though the random points occurred very near an indifference curve for most subjects they
did not express regret at not having drawn their indifference curve differently.
It should be noted that this method can be used in many more situations than simply
the determination of indifference curves. Most choice situations involve a determination
of an equivalence relation, and the method can undoubtedly be adapted to most of these
situations. A further discussion of its generality and a theoretical basis for it is given in
Toda and MacCrimmon [16].
Although dominance-based concepts, through the rectangle and line methods, have
not been used in the previous experimental determinations of indifferencecurves (Thurstone,
especially, would have found them useful), they are commonly used in many different
contexts. Their obviousness does not detract from their usefulness though. The in-
appropriateness of any particular form (i.e., the rectangle or line) would not cause a
problem because it would be discovered by the subject as he made his choices, so there is
no danger of forcing an inappropriate exclusion method on him.
Another important feature of our procedure is the emphasis on allowing the subject
to carefully consider his choices. The training session at the beginning-a half hour to
an hour would suffice-teaches him how to represent his preferences. He is given another
opportunity to reflect on his preferences when he is asked to transfer the individually drawn
indifference curves to the joint graph. After this the graphs are taken away and he is
given a series of pairwise comparisons among bundles on either side of the curves he has
drawn. We used these as checks on his consistency, but ideally they would be compared
by the subject with the curves he had drawn and he would be allowed to make changes.
This procedure could be repeated and perhaps could even be set up as a visual computer
display with the consistency checks programmed in and performed on-line in real-time.
We think such opportunities for the subject to reflect on his choices are used all too
infrequently in preference, judgment and general choice situations. After all, if we are
really trying to obtain the subject's true choices rather than trying to trick him into incon-
sistencies, he should be given an opportunity to carefully consider those choices. More
effective use of training sessions in which the subject is taught to generate the relevant
questions can be very efficient both in terms of subsequent experimental time and in
obviating the need to prepare elaborate experimental materials.
In the particular experiments we performed we did not force any of the usual properties
of indifference curves (as both Thurstone and Rousseas and Hart did). None of the
indifference curves actually crossed, but the joining up of the money/pastry curves for
3 subjects is a violation of transitivity. In no case did we ask subjects to redraw inter-
secting curves, although we did explain the implications of this at the training session.
It would have been useful to have asked specific questions of the 3 subjects. There was
also no attempt to force the curves to have a negative slope, and the nature of the use of
pastries as a commodity in fact led us to expect a positive slope. In the money/pen case
the use of the rectangle method does not constrain the curves to slope downward if this is
not a true reflection of preferences since if the preferences were such that in some region
the subject wanted the curve to slope upward he would discover this by attempting to
overlap the A and R regions. Finally, we did not force the curves to be convex, and we
do note some concave regions in both commodity pair graphs. It would have been useful
to test these regions of non-convexity by presenting the subject with pairwise comparisons
of bundles from those regions.
The particular experiments we performed while providing interesting information
are by no means definitive. The results give some indication of the preferences of a small
 EXPERIMENTAL DETERMINATION OF INDIFFERENCE CURVES 449

group of individuals for particular commodities at one point in time. Let us take up these
restrictions one by one.
The sample size could be usefully broadened even for the commodities used. Certainly
if we are ultimately interested in market behaviour we cannot confine our attention solely
to college students. It also would be worthwhile to sample on the basis of attributes we
think might be significant for the commodities used, for example, income level, weight,
education, family size, etc. Note that we obtained a significant sex difference for pastries.
It should be observed that even with our seven subjects we get diverse preferences that fall
into reasonable classes-for example, the strong and mild disinterest in large numbers of
pens, and the existence and location of relative and absolute satiation levels for
pastries.
In addition to using more subjects, a variety of commodities could be introduced.
We have used two quite diverse, and consequently special ones. In one case the con-
sumption of the commodity was forced immediately, while in the second case consumption
was not forced at all. Considering each commodity as a representative of a more general
class, the former is an example of a situation that we would pay to get out of, while the
latter is one in which we personally would consume a small amount but would stock,
give away, or resell larger amounts. In addition to representing this larger class of com-
modities, forced consumption of the pastries hopefully contributed to more careful thought
on the part of the subject since he realized he would suffer directly if he misrepresented his
preferences. The diversity of shapes of the money/pastry curves should be noted; it
certainly seems to question homogeneity of taste assumptions that are commonly made.
In the case of the pens there is reason to believe that no subject was planning to
personally use large numbers of pens, rather they were planning to give them to friends or
to sell them. This fact should not cast doubt on the curves as the appropriate reflection
of their preferences-for after all we are not, in general, concerned with motivations in
predicting market behaviour. Whether he uses the commodity himself, gives it away or
resells it makes no difference in his indifference curves (although it could have an effect
on the total) as long as there is relative stability in his own tastes, his perception of his
friends' tastes, and the downward sloping demand schedule he faces for resale. Alter-
natively, if the long linear segment or possible resale bothers anyone, the region above
10 pens can be cut off and the scale in the lower region can be expanded to get the more
convex curves we are accustomed to seeing.
In further experiments a reasonable class of commodities to be represented would be
one which lies between the extremes we have considered. That is, the subject would
personally consume a large amount at his leisure. One procedure that might be helpful
in such cases would be to select the subject on the basis of his known consumption of
the commodity to be used. For example, we considered selecting photographers and
using rolls of film, smokers apd using pipe tobacco or cigarettes, and beer drinkers and
using beer and peanuts. Another useful change in future experiments would be to construct
commodity bundles in which money was not included as one of the commodities. In such
a case one could check for substitutability or complementarity.
An additional modification in our design that could be quite interesting would be to
obtain preferences for the same commodity bundles at different points in time. These
points might either be chosen randomly or could be chosen to reflect some expected
differences in preferences (e.g., for foodstuffs at different times of the day, or for money
or many other commodities just before and just after pay-day). Such a study could provide
useful information for an important concern of any theory of choice-the stability of
preferences over time.
Many other changes in the experimental design could be proposed. It would be
desirable to observe the sensitivity of the indifference curve to the particular reference
point used. For example, the subject could be given a reference point that fell on an inter-
mediate part of a curve he had previously drawn, and he would be asked to construct the
450 REVIEW OF ECONOMIC STUDIES

indifference curve through this reference point. If the curves did not coincide, the subject
would be shown the divergence and allowed to redraw the curve(s).
Such a sensitivity test is in some sense a type of validation of the curves drawn, but
more direct validations could be proposed. The indifference curves obtained could be
used to predict choices among commodities not lying on one of these curves. This could
be done by simple extrapolation or interpolation. Another possible attempt at validation
could be performed if a constant marginal utility of a common commodity could be
assumed and two sets of indifference curves would be used to predict the third set, as
Thurstone attempted to do.
A more interesting test would be to form pairs of individuals and put them together
in a barter situation with some fixed amount of two commodities and allow them to leave
with whatever division they agree upon. By putting their indifference curves together
into an Edgeworth box one could see how close they come to the contract curve. That is,
one would predict that in a one-shot situation they would form a division on the contract
curve and the actual division would form a test of the accuracy of the individual in-
difference curves. Alternatively, they could be started on the contract curve and any
movement away would be noted and would be evidence of the lack of validity of the
indifference curves.
Another attempt to validate the indifference curves by direct prediction would be to
make the appropriate assumptions to get numerical utilities and then these could be used
to predict choices. Any discrepancy though could be attributed to either poor indifference
curves or the invalidity of the assumptions made. This topic will be explored in some
depth in a forthcoming paper (MacCrimmon and Toda [8]).
Most of the discussion above is directed to determination of indifference curves in
situations that an experimenter constructs. However, we might wonder whether these
procedures can be used in real world choice situations where preferences could be reflected
by indifference curves, for example, the bombs and bombers trade-off of Hitch and McKean.
It should be obvious that the emphasis on training, reflection, and checks on consistency
could be part of any consideration of preferences. Also, the complexity reduction tech-
niques based on admissibility can easily be used. This, then, only leaves the question of
whether the payoff part of the method is useful in real world choices. Note that as we
use it in experiments it is particularly effective because the subject will actually receive a
commodity bundle based on his positioning of the indifference curve. Clearly there are
many situations, not only bombs and bombers, in which we are not prepared to give the
individual one of the commodity bundles. This leads to the question of whether the payoff
part of the method is of any use when applied hypothetically-for example, " suppose
after you draw the indifference curve we randomly select a combination of bombs and
bombers, if it is in your accept region we will give you that combination, if it is in your
reject region you get the reference bundle." Whether such hypothetical payoffs are
effective is an empirical matter, but in any case it is probably as good as any other pro-
cedure in these contexts. Since all important decisions involve a representation of prefer-
ences in some form or other, it would be useful to explore the possibilities of applying these
experimentally based procedures in real world choice situations.
Carnegie-Mellon University K. R. MACCRIMMON.
Hokkaido University M. TODA.
First version received 15.12.67; final version received 15.2.69

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