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Market experience eliminates some anomalies--and creates new ones

  • Braga, Jacinto
  • Humphrey, Steven J.
  • Starmer, Chris

We report two experiments which investigate whether experience of decision making in repeated markets purges behaviour of preference reversals. We investigate two behavioural mechanisms that may be shaping bids in repeated auctions: A tendency to adjust bids towards previously observed market prices, and a tendency to reduce bids following bad market outcomes. We find little support for the former but strong support for the latter. Also, whilst 'just enough' market exposure eliminates the typical preference reversal phenomenon, continued exposure fosters the mirror image anomaly. Therefore, although market experience shapes behaviour, in our experiments, it does not generally promote consistency with standard preference theory.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 4 (May)
Pages: 401-416

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Handle: RePEc:eee:eecrev:v:53:y:2009:i:4:p:401-416
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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