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Market experience eliminates some anomalies--and creates new ones

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  • Braga, Jacinto
  • Humphrey, Steven J.
  • Starmer, Chris

Abstract

We report two experiments which investigate whether experience of decision making in repeated markets purges behaviour of preference reversals. We investigate two behavioural mechanisms that may be shaping bids in repeated auctions: A tendency to adjust bids towards previously observed market prices, and a tendency to reduce bids following bad market outcomes. We find little support for the former but strong support for the latter. Also, whilst 'just enough' market exposure eliminates the typical preference reversal phenomenon, continued exposure fosters the mirror image anomaly. Therefore, although market experience shapes behaviour, in our experiments, it does not generally promote consistency with standard preference theory.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 4 (May)
Pages: 401-416

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Handle: RePEc:eee:eecrev:v:53:y:2009:i:4:p:401-416

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Preference reversal Vickrey auction Refining Loss experience Price following;

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Cited by:
  1. Graham Loomes & Chris Starmer & Robert Sugden, 2009. "Preference reversals and disparities between willingness to pay and willingness to accept in repeated markets," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 09-07, School of Economics, University of East Anglia, Norwich, UK..
  2. John Morgan & Henrik Orzen & Martin Sefton, 2008. "Endogenous Entry in Contests," Discussion Papers 2008-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  3. Andrea Isoni & Peter Brooks & Graham Loomes & Robert Sugden, 2011. "Do markets reveal preferences - or shape them?," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 11-03, School of Economics, University of East Anglia, Norwich, UK..
  4. Nathan Berg & G. Biele & Gerd Gigerenzer, 2013. "Does Consistency Predict Accuracy of Beliefs?: Economists Surveyed About PSA," Working Papers 1308, University of Otago, Department of Economics, revised Apr 2013.
  5. Jose-Luis Pinto-Prades & Jose-Maria Abellan-Perpiñan, 2011. "When normative and descriptive diverge: how to bridge the difference," Working Papers 11.06, Universidad Pablo de Olavide, Department of Economics.
  6. Holger Müller & Eike Benjamin Kroll & Bodo Vogt, 2010. "When Judgments and Preferences Fail to Conform: Research on Preference Reversals for Product Purchases," FEMM Working Papers 100003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  7. Bramsen, Jens-Martin, 2008. "Learning to bid, but not to quit – Experience and Internet auctions," MPRA Paper 14815, University Library of Munich, Germany.

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