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Are ‘true’ preferences revealed in repeated markets? An experimental demonstration of context-dependent valuations

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  • Fabio Tufano

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Abstract

This paper reports a new and significant experimental demonstration that market participants adjust their bids towards the price observed in previous market periods when – by design – individuals’ values should not be affiliated with the market price. This demonstration implies that market prices may not adjust as standard comparative statics predicts and emphasizes the significance of social aspects even in market contexts. Hence, the present study shows that market behaviour is not anomaly-free. Indeed, market behaviour does not reveal the underlying true preferences but rather context-dependent preferences.

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File URL: http://hdl.handle.net/10.1007/s10683-009-9226-8
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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 13 (2010)
Issue (Month): 1 (March)
Pages: 1-13

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Handle: RePEc:kap:expeco:v:13:y:2010:i:1:p:1-13

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: Auctions; Valuations; Economic principles; Anomalies; Experiments; Social interactions; C92; D01; D44;

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References

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  1. Lusk,Jayson L. & Shogren,Jason F., 2007. "Experimental Auctions," Cambridge Books, Cambridge University Press, number 9780521855167.
  2. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
  3. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government.
  4. Harrison, Glen W. & Ronald M. Harstad & E. Elisabet Rutström, 1995. "Experimental Methods and Elicitation of Values," Discussion Paper Serie B 349, University of Bonn, Germany.
  5. Cooper, David & Rege, Mari, 2008. "Social Interaction Effects and Choice Under Uncertainty. An Experimental Study," UiS Working Papers in Economics and Finance 2009/24, University of Stavanger.
  6. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
  7. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 73-105, February.
  8. Jason Shogren, 2006. "Valuation in the Lab," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(1), pages 163-172, 05.
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Citations

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Cited by:
  1. Zacharias Maniadis & Fabio Tufano & John A List, 2013. "One Swallow Doesn’t Make a Summer: New Evidence on Anchoring Effects," Discussion Papers 2013-07, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Corrigan, Jay & Drichoutis, Andreas & Lusk, Jayson & Nayga, Rodolfo & Rousu, Matt, 2011. "Repeated Rounds with Price Feedback in Experimental Auction Valuation: An Adversarial Collaboration," MPRA Paper 28337, University Library of Munich, Germany.
  3. Meub, Lukas & Proeger, Till, 2014. "An experimental study on social anchoring," Center for European, Governance and Economic Development Research Discussion Papers 196, University of Goettingen, Department of Economics.
  4. 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..
  5. Sugden, Robert & Zheng, Jiwei & Zizzo, Daniel John, 2013. "Not all anchors are created equal," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 21-31.
  6. Drew Fudenberg & David K. Levine & Zacharias Maniadis, 2012. "On the Robustness of Anchoring Effects in WTP and WTA Experiments," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 131-45, May.
  7. Meub, Lukas & Proeger, Till, 2014. "Are groups 'less behavioral'? The case of anchoring," Center for European, Governance and Economic Development Research Discussion Papers 188, University of Goettingen, Department of Economics.
  8. Beraldo, Sergio & Filoso, Valerio & Marco, Stimolo, 2013. "Endogenous Preferences and Conformity: Evidence From a Pilot Experiment," MPRA Paper 48539, University Library of Munich, Germany.
  9. Jeffrey Livingston, 2010. "The effect of id verification in online auctions: Evidence from a field experiment," Natural Field Experiments 00273, The Field Experiments Website.
  10. Zacharias Maniadis & Fabio Tufano & John A. List, 2014. "One Swallow Doesn't Make a Summer: New Evidence on Anchoring Effects," American Economic Review, American Economic Association, vol. 104(1), pages 277-90, January.
  11. Drew Fudenberg & David K. Levine & Zacharias Maniadis, 2010. "Re-examining coherent arbitrariness for the evaluation of common goods and simple lotteries," Working Papers 034, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.

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