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Is the Experimental Auction a Dynamic Market?

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  • Jay Corrigan

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Abstract

Experimental auctions are generally thought of as static markets. This paper presents the results of an experimental auction designed to test whether participants’ perceptions regarding the relative difficulty of delaying or reversing a transaction outside the experimental market systematically affect their willingness-to-pay bids. The results show that auction participants’ perceptions significantly impact their bids in a manner that is consistent with real option theory. These results suggest that economists must be careful to consider the existence of outside markets when designing experimental auctions. Copyright Springer 2005

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 31 (2005)
Issue (Month): 1 (05)
Pages: 35-45

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Handle: RePEc:kap:enreec:v:31:y:2005:i:1:p:35-45

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: commitment cost; dynamic markets; experimental auctions; real option theory;

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References

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  1. Noussair, C.N. & Robin, S. & Ruffieux, B., 2002. "Do consumers not care about biotech foods or do they just not read the labels?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-378702, Tilburg University.
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  3. Jay R. Corrigan & Matthew C. Rousu, 2006. "The Effect of Initial Endowments in Experimental Auctions," Working Papers 0601, Kenyon College, Department of Economics.
  4. Shogren, Jason F. & List, John & Hayes, Dermot J., 2000. "Preference Learning in Consecutive Experimental Auctions," Staff General Research Papers 5023, Iowa State University, Department of Economics.
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  11. Jayson L. Lusk & John A. Fox & Ted C. Schroeder & James Mintert & Mohammad Koohmaraie, 2001. "In-Store Valuation of Steak Tenderness," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 539-550.
  12. Shogren, Jason F. & Shin, Seung Youll & Hayes, Dermot J. & Kliebenstein, James, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," Staff General Research Papers 701, Iowa State University, Department of Economics.
  13. Jinhua Zhao & Catherine L. Kling, 2004. "Willingness to Pay, Compensating Variation, and the Cost of Commitment," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 503-517, July.
  14. Coursey, Don L & Hovis, John L & Schulze, William D, 1987. "The Disparity between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 679-90, August.
  15. Ty Feldkamp & Ted C. Schroeder, 2004. "Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 389-405.
  16. Matthew C. Rousu & Wallace E. Huffman & Jason F. Shogren & Abebayehu Tegene, 2004. "Estimating the Public Value of Conflicting Information: The Case of Genetically Modified Foods," Land Economics, University of Wisconsin Press, vol. 80(1), pages 125-135.
  17. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
  18. Hayes, Dermot J. & Shogren, Jason F. & Shin, Seung Youll & Kliebenstein, James, 1995. "Valuing Food Safety in Experimental Auction Markets," Staff General Research Papers 835, Iowa State University, Department of Economics.
  19. Matthew Rousu & Wallace E. Huffman & Jason F. Shogren & Abebayehu Tegene, 2004. "Are United States Consumers Tolerant of Genetically Modified Foods?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(1), pages 19-31.
  20. Shogren, Jason F. & Margolis, Michael & Koo, Cannon & List, John A., 2001. "A random nth-price auction," Journal of Economic Behavior & Organization, Elsevier, vol. 46(4), pages 409-421, December.
  21. Shogren, Jason F. & Crocker, Thomas D., 1994. "Rational risk valuation given sequential reduction opportunities," Economics Letters, Elsevier, vol. 44(3), pages 241-248.
  22. Fox, John A & Hayes, Dermot J & Shogren, Jason F, 2002. " Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 75-95, January.
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Citations

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Cited by:
  1. Jay R. Corrigan & Matthew C. Rousu, 2006. "The Effect of Initial Endowments in Experimental Auctions," Working Papers 0601, Kenyon College, Department of Economics.
  2. Lusk, Jayson L. & Norwood, F. Bailey, 2009. "Bridging the gap between laboratory experiments and naturally occurring markets: An inferred valuation method," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 236-250, September.
  3. Corrigan, Jay R., 2006. "The Reverse Auction: A New Approach to Experimental Auction Valuation," 2006 Annual meeting, July 23-26, Long Beach, CA 21449, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Jay R. Corrigan & Catharine L. Kling & Jinhua Zhao, 2006. "The Dynamic Formation of Willingness to Pay: An Empirical Specification and Test," Working Papers 0603, Kenyon College, Department of Economics.
  5. Jay Corrigan & Matthew Rousu, 2008. "Testing whether field auction experiments are demand revealing in practice," Framed Field Experiments 00161, The Field Experiments Website.
  6. Jay Corrigan & Catherine Kling & Jinhua Zhao, 2008. "Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 285-298, June.

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