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Preference reversals and disparities between willingness to pay and willingness to accept in repeated markets

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Author Info

  • Graham Loomes

    (Department of Economics, University of Warwick)

  • Chris Starmer

    (School of Economics, University of Nottingham)

  • Robert Sugden

    ()
    (School of Economics, University of East Anglia)

Abstract

Previous studies suggest that two otherwise robust ‘anomalies’ – preference reversals and disparities between buying and selling valuations – are eroded when respondents participate in repeated markets. We report an experiment which investigates whether this is true when factors neglected in previous studies are controlled, and which distinguishes between anomalies revealed in the behaviour of individual market participants and anomalies revealed in market prices. Our results confirm the decay of buy/sell disparities, but not of preference reversal. This raises doubts about the hypothesis that, in general, repeated markets reveal anomaly-free preferences, even among the marginal traders who determine prices.

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Bibliographic Info

Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2009-24.

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Date of creation: Nov 2009
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Handle: RePEc:cdx:dpaper:2009-24

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Keywords: preference reversal; willingness to accept; willingness to pay; repeated market;

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References

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Citations

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Cited by:
  1. Sergio Beraldo & Valerio Filoso & Marco Stimolo, 2014. "Endogenous Preferences and Conformity: Evidence From a Pilot Experiment," Working papers 024, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
  2. Chambers, Robert G. & Melkonyan, Tigran A., 2009. "Buy low, sell high: Price gaps and neoclassical theory," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 720-729, December.
  3. Berg, Nathan & Biele, Guido & Gigerenzer, Gerd, 2010. "Does consistency predict accuracy of beliefs?: Economists surveyed about PSA," MPRA Paper 26590, University Library of Munich, Germany.
  4. Attema, Arthur & Brouwer, Werner, 2012. "In search of a preferred preference elicitation method: A test of the internal consistency of choice and matching tasks," MPRA Paper 36100, University Library of Munich, Germany.
  5. Susan Chilton & Michael Jones-Lee & Rebecca McDonald & Hugh Metcalf, 2012. "Does the WTA/WTP ratio diminish as the severity of a health complaint is reduced? Testing for smoothness of the underlying utility of wealth function," Journal of Risk and Uncertainty, Springer, vol. 45(1), pages 1-24, August.
  6. Katrine Hjorth & Mogens Fosgerau, 2011. "Loss Aversion and Individual Characteristics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(4), pages 573-596, August.
  7. Hammond, Peter J & Zank, Horst, 2013. "Rationality and Dynamic Consistency under Risk and Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 1033, University of Warwick, Department of Economics.
  8. 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..

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