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Serving Consumers in an Uncertain World: A Credence Goods Experiment

Author

Listed:
  • Loukas Balafoutas

    (University of Exeter, United Kingdom; University of Innsbruck, Austria)

  • Helena Fornwagner

    (University of Exeter, United Kingdom; Austrian Institute of Economic Research (WIFO))

  • Rudolf Kerschbamer

    (University of Innsbruck, Austria)

  • Matthias Sutter

    (University of Innsbruck, Austria; Max Planck Institute for Research on Collective Goods, IZA Bonn and CESifo Munich, Germany; University of Cologne, Germany)

  • Maryna Tverdostup

    (Vienna Institute for International Economic Studies, Austria)

Abstract

Credence goods markets are prone to fraudulent behavior and market inefficiencies due to informational asymmetries between sellers and customers. We examine experimentally the effects of diagnostic uncertainty and insurance coverage on the information acquisition and provision decisions by sellers and the trading decisions by consumers. Our results reveal that diagnostic uncertainty is a major source of inefficiency by decreasing efficient service provision. Insurance coverage has a positive net effect on market efficiency, despite making information acquisition and efficient service provision less likely. We also examine the role of -s and of sellers’ prosociality in shaping service provision and information acquisition.

Suggested Citation

  • Loukas Balafoutas & Helena Fornwagner & Rudolf Kerschbamer & Matthias Sutter & Maryna Tverdostup, 2023. "Serving Consumers in an Uncertain World: A Credence Goods Experiment," ECONtribute Discussion Papers Series 258, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:258
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    More about this item

    Keywords

    Credence goods; diagnostic uncertainty; insurance coverage; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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