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Are ‘True’ Preferences Revealed in Repeated Markets? An Experimental Demonstration of Context-dependent Valuations

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Author Info
Fabio Tufano () (CeDEx, School of Economics, University of Nottingham, Cifrem, Università degli Studi di Trento)

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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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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2008-12.

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Date of creation: Oct 2008
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Handle: RePEc:cdx:dpaper:2008-12

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Related research
Keywords: Repeated markets; Economic principles; Anomalies; Experiment; Social interactions;

Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  2. Durlauf, Steven N., 2004. "Neighborhood effects," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 50, pages 2173-2242 Elsevier. [Downloadable!] (restricted)
  3. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June. [Downloadable!] (restricted)
  4. Graham Loomes & Chris Starmer & Robert Sugden, 2003. "Do Anomalies Disappear in Repeated Markets?," Economic Journal, Royal Economic Society, vol. 113(486), pages C153-C166, March. [Downloadable!] (restricted)
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  5. Jack Knetsch & Fang-Fang Tang & Richard Thaler, 2001. "The Endowment Effect and Repeated Market Trials: Is the Vickrey Auction Demand Revealing?," Experimental Economics, Springer, vol. 4(3), pages 257-269, December. [Downloadable!] (restricted)
  6. 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. [Downloadable!]
  7. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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