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Are ‘True’ Preferences Revealed in Repeated Markets? An Experimental Demonstration of Context-dependent Valuations

  • Fabio Tufano

    ()

    (CeDEx, School of Economics, University of Nottingham
    Cifrem, Università degli Studi di Trento)

This paper reports a new and significant experimental demonstration that market participants adjust their bids towards the price observed in previous market periods when – by design – individuals’ values should not be affiliated with the market price. This demonstration implies that market prices may not adjust as standard comparative statics predicts and emphasizes the significance of social aspects even in market contexts. Hence, the present study shows that market behaviour is not anomaly-free. Indeed, market behaviour does not reveal the underlying true preferences but rather context-dependent preferences.

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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2008-12.

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Date of creation: Oct 2008
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Handle: RePEc:cdx:dpaper:2008-12
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  1. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government.
  2. Glenn W. Harrison & Ronald M. Harstad & E. Elisabet Rutstr–m, 2004. "Experimental Methods and Elicitation of Values," Experimental Economics, Springer, vol. 7(2), pages 123-140, 06.
  3. repec:cup:cbooks:9780521855167 is not listed on IDEAS
  4. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 73-105, February.
  5. Cooper, David & Rege, Mari, 2008. "Social Interaction Effects and Choice Under Uncertainty. An Experimental Study," UiS Working Papers in Economics and Finance 2009/24, University of Stavanger.
  6. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
  7. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
  8. Jason Shogren, 2006. "Valuation in the Lab," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(1), pages 163-172, 05.
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