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Auction Bids and Shopping Choices

  • Lusk Jayson L


    (Oklahoma State Universtiy)

  • Schroeder Ted C.


    (Kansas State University)

Economists and marketers are often interested in estimating demand for new products and in valuing other non-market goods. Due to the increasing recognition that elicited valuations are sensitive to whether decisions are hypothetical, economists have begun to utilize incentive compatible mechanisms with real goods and real money. This paper investigates preferences expressed in two of the most popular elicitation formats: experimental auctions and discrete choice experiments. We compare the bidding behavior of consumers in four different incentive compatible auctions to the behavior of consumers who made non-hypothetical discrete choices between five goods. Despite the fact that the choice task and auction mechanisms are incentive compatible, we find that auction bids were significantly lower, as much as two times lower in many cases, than valuations implied from choices. We also find that auction data imply own-price elasticities of demand for higher quality products that are significantly more elastic than those implied from choice data. Nevertheless, for the five goods evaluated, individuals' preference orderings were consistent across value elicitation methods. These findings hold important implications for economists' view of preferences and may provide some insight into retailers' prevalent use of markets with posted-prices: individuals were more willing to part with their cash when making choices versus bids.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 6 (2006)
Issue (Month): 1 (August)
Pages: 1-39

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Handle: RePEc:bpj:bejeap:v:advances.6:y:2006:i:1:n:4
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