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On Price Data Elicitation: a Laboratory Investigation

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  • Morone, Andrea

Abstract

There is abundant literature in experimental research on decision making under risk, which compares, and ranks subjects’ preferences on the basis of some elicitation method. The present paper performs a similar analysis in order to compare them. Since pricing data lead in many cases to some anomalies (i.e. status quo bias endowment effect) we examine three mechanisms to elicit price preferences: willingness-to-pay in a second price auction, willingness-to-accept in a second price auction, and certainty equivalent elicited with BDM. A Bayesian interpretation of our results suggests that it is not possible to state ex-ante the more appropriate elicitation method for a particular subject: for 1/3 of our sample WTP is preferred for 1/3 of our sample WTA is preferred and for the remaining 1/3 BDM is preferred.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18358.

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Date of creation: Oct 2009
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Handle: RePEc:pra:mprapa:18358

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Keywords: willingness-to-pay; willingness-to-accept; BDM; second price auction;

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References

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  1. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-78, September.
  2. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  3. Wilcox, Nathaniel, 2007. "Stochastically more risk averse: A contextual theory of stochastic discrete choice under risk," MPRA Paper 11851, University Library of Munich, Germany.
  4. Coursey, Don L & Hovis, John L & Schulze, William D, 1987. "The Disparity between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 679-90, August.
  5. Andrea Morone & Ulrich Schmidt, 2008. "An Experimental Investigation of Alternatives to Expected Utility Using Pricing Data," Economics Bulletin, AccessEcon, vol. 4(20), pages 1-12.
  6. Knetsch, Jack L & Sinden, J A, 1984. "Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 507-21, August.
  7. Knetsch, Jack L & Sinden, J A, 1987. "The Persistence of Evaluation Disparities," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 691-95, August.
  8. Andrea Morone, 2004. "Comparison of Mean-Variance theory and Expected-Utility theory through a Laboratory Experiment," Experimental 0402001, EconWPA.
  9. Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer, vol. 1(2), pages 115-131, September.
  10. Lisa Anderson & Jennifer Mellor, 2009. "Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure," Journal of Risk and Uncertainty, Springer, vol. 39(2), pages 137-160, October.
  11. Beattie, Jane & Loomes, Graham, 1997. "The Impact of Incentives upon Risky Choice Experiments," Journal of Risk and Uncertainty, Springer, vol. 14(2), pages 155-68, March.
  12. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
  13. Isaac, R Mark & James, Duncan, 2000. " Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 177-87, March.
  14. 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.
  15. repec:ebl:ecbull:v:4:y:2008:i:20:p:1-12 is not listed on IDEAS
  16. Harrison, Glenn W, 1990. "Risk Attitudes in First-Price Auction Experiments: A Bayesian Analysis," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 541-46, August.
  17. repec:ebl:ecbull:v:3:y:2008:i:40:p:1-7 is not listed on IDEAS
  18. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
  19. Wu, George, 1994. "An Empirical Test of Ordinal Independence," Journal of Risk and Uncertainty, Springer, vol. 9(1), pages 39-60, July.
  20. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
  21. John Hey & Jinkwon Lee, 2005. "Do Subjects Separate (or Are They Sophisticated)?," Experimental Economics, Springer, vol. 8(3), pages 233-265, September.
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Citations

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Cited by:
  1. Ozlem Ozdemir & Andrea Morone, 2012. "Black Swan Protection: an Experimental Investigation," Working Papers 2012/12, Economics Department, Universitat Jaume I, Castellón (Spain).
  2. Stefan Zeisberger & Dennis Vrecko & Thomas Langer, 2012. "Measuring the time stability of Prospect Theory preferences," Theory and Decision, Springer, vol. 72(3), pages 359-386, March.
  3. Attema, Arthur E. & Brouwer, Werner B.F., 2012. "A test of independence of discounting from quality of life," Journal of Health Economics, Elsevier, vol. 31(1), pages 22-34.

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