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Re-examining coherent arbitrariness for the evaluation of common goods and simple lotteries

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Author Info

  • Drew Fudenberg
  • David K. Levine
  • Zacharias Maniadis

Abstract

The assumption that people make decisions based on a constant set of preferences, so that choices should not depend on context-specific cues (anchors), is one of the cornerstones of economic theory. We reexamined the effects of an anchoring manipulation on the valuation of common market goods that was introduced in Ariely, Lowenstein and Prelec (2003). We found much weaker anchoring effects. We performed the same manipulation on the evaluation of binary lotteries, and we found no anchoring effects. This suggests limits on the robustness of strong anchoring effects. Hence, the evidence that people have "arbitrary preferences" may not be conclusive, and economic theory may still be valid in many cases of interest.

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File URL: ftp://ftp.dondena.unibocconi.it/WorkingPapers/Dondena_WP034.pdf
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Bibliographic Info

Paper provided by "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi in its series Working Papers with number 034.

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Length: 30 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:don:donwpa:034

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Related research

Keywords: preferences; anchoring; willingness to pay; Becker-DeGroot-Marschak mechanism;

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References

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  1. Bergman, Oscar & Ellingsen, Tore & Johannesson, Magnus & Svensson, Cicek, 2010. "Anchoring and cognitive ability," Economics Letters, Elsevier, vol. 107(1), pages 66-68, April.
  2. David M. Grether & James C. Cox, 1996. "The preference reversal phenomenon: Response mode, markets and incentives (*)," Economic Theory, Springer, vol. 7(3), pages 381-405.
  3. Fabio Tufano, 2008. "Are ‘True’ Preferences Revealed in Repeated Markets? An Experimental Demonstration of Context-dependent Valuations," Discussion Papers 2008-12, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  4. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-38, September.
  5. John C. Hershey & Paul J. H. Schoemaker, 1985. "Probability Versus Certainty Equivalence Methods in Utility Measurement: Are they Equivalent?," Management Science, INFORMS, vol. 31(10), pages 1213-1231, October.
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Cited by:
  1. Cunningham, Thomas, 2013. "Biases and Implicit Knowledge," MPRA Paper 50292, University Library of Munich, Germany.

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