Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries
AbstractExperimental studies of the WTP-WTA gap avoid social trading by implementing an incentive compatible mechanism for each individual trader. We compare a traditional random price mechanism and a novel elicitation mechanism preserving social trading, without sacrificing mutual incentive compatibility. Furthermore, we focus on risky goods - binary monetary lotteries - for which asymmetries in evaluations are more robust with respect to experimental procedures. For both elicitation mechanisms, the usual asymmetry in evaluation by sellers and buyers is observed. An econometric estimation sheds new light on its causes: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2013-047.
Date of creation: 05 Nov 2013
Date of revision:
WTP-WTA gap; Risk; Elicitation Mechanisms; Probability Weighting;
Other versions of this item:
- Werner Güth & Matteo Ploner & Ivan Soraperra, 2014. "Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries," CESifo Working Paper Series 4575, CESifo Group Munich.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-CBE-2013-11-16 (Cognitive & Behavioural Economics)
- NEP-EXP-2013-11-16 (Experimental Economics)
- NEP-UPT-2013-11-16 (Utility Models & Prospect Theory)
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