Do markets reveal preferences - or shape them?
Abstract
Standard economic analysis assumes that preferences are independent of markets. However, there is evidence suggesting that price information can influence preferences. We investigate the hypothesis that markets do not simply allow agents to reveal their preferences, but actually help to shape them. Using a demand- revealing market institution, we find strong support for this shaping hypothesis. Monetary valuations are significantly affected by price feedback and divergent price expectations. These effects are not entirely eliminated by further market experience. Our results suggest that preferences may be characterised by considerable imprecision and may be influenced by market prices in predictable ways.Download Info
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.Bibliographic Info
Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 11-03.Length:
Date of creation: 01 Feb 2011
Date of revision:
Handle: RePEc:uea:wcbess:11-03
Contact details of provider:
Postal: Norwich NR4 7TI
Phone: 44 1603 591131
Fax: +44(0)1603 4562592
Web page: http://www.uea.ac.uk/eco/
More information through EDIRC
Order Information:
Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
Email:
Related research
Keywords: Shaping effects; repeated markets; price sensitivity; preference imprecision;Find related papers by JEL classification:
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
References
References listed on IDEASPlease 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.:
- Dan Ariely & George Loewenstein & Drazen Prelec, 2005.
"Tom Sawyer and the construction of value,"
Working Papers
05-10, Federal Reserve Bank of Boston.
- Ariely, Dan & Loewenstein, George & Prelec, Drazen, 2006. "Tom Sawyer and the construction of value," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 1-10, May.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometrica,
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- John A. List & Jason F. Shogren, 1999. "Price Information and Bidding Behavior in Repeated Second-Price Auctions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 942-949.
- Fabio Tufano, 2010. "Are ‘true’ preferences revealed in repeated markets? An experimental demonstration of context-dependent valuations," Experimental Economics, Springer, vol. 13(1), pages 1-13, March.
- Shogren, Jason F & Hayes, Dermot J, 1997.
"Resolving Differences in Willingness to Pay and Willingness to Accept: Reply,"
American Economic Review,
American Economic Association, vol. 87(1), pages 241-44, March.
- Shogren, Jason F. & Hayes, Dermot J., 1997. "Resolving Differences in Willingness to Pay and Willingness to Accept: Reply," Staff General Research Papers 1153, Iowa State University, Department of Economics.
- Uri Simonsohn & George Loewenstein, 2006. "Mistake #37: The Effect of Previously Encountered Prices on Current Housing Demand," Economic Journal, Royal Economic Society, vol. 116(508), pages 175-199, 01.
- Jacinto Braga & Chris Starmer, 2005. "Preference Anomalies, Preference Elicitation and the Discovered Preference Hypothesis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 55-89, 09.
- David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 97(1), pages 277-297, March.
Citations
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:uea:wcbess:11-03For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alasdair Brown).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.