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Does market experience eliminate market anomalies? The case of exogenous market experience

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  • John List

Abstract

A vibrant literature has emerged that suggests willingness to pay and willingness to accept measures of value are quite different for inexperienced consumers but that value differences erode with market experience. One potential shortcoming of this literature is that market experience is endogenous. This study presents a framed field experiment that exogenously induces market experience. Empirical findings support the premise that market experience, alone, can eliminate an important market anomaly.

Suggested Citation

  • John List, 2011. "Does market experience eliminate market anomalies? The case of exogenous market experience," Framed Field Experiments 00178, The Field Experiments Website.
  • Handle: RePEc:feb:framed:00178
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    References listed on IDEAS

    as
    1. List John A. & Millimet Daniel L, 2008. "The Market: Catalyst for Rationality and Filter of Irrationality," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-55.
    2. repec:feb:framed:0070 is not listed on IDEAS
    3. Amit Seru & Tyler Shumway & Noah Stoffman, 2010. "Learning by Trading," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 705-739, February.
    4. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    5. Dirk Engelmann & Guillaume Hollard, 2010. "Reconsidering the Effect of Market Experience on the “Endowment Effect”," Econometrica, Econometric Society, vol. 78(6), pages 2005-2019, November.
    6. Ian Bateman & Alistair Munro & Bruce Rhodes & Chris Starmer & Robert Sugden, 1997. "A Test of the Theory of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 479-505.
    7. Hyuk Choe & Yunsung Eom, 2009. "The disposition effect and investment performance in the futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 29(6), pages 496-522, June.
    8. Lei Feng & Mark Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, Springer, vol. 9(3), pages 305-351, September.
    9. List, John A., 2004. "Substitutability, experience, and the value disparity: evidence from the marketplace," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 486-509, May.
    10. Gächter, Simon & Orzen, Henrik & Renner, Elke & Starmer, Chris, 2009. "Are experimental economists prone to framing effects? A natural field experiment," Journal of Economic Behavior & Organization, Elsevier, pages 443-446.
    11. Greenwood, Robin & Nagel, Stefan, 2009. "Inexperienced investors and bubbles," Journal of Financial Economics, Elsevier, vol. 93(2), pages 239-258, August.
    12. Ravi Dhar & Ning Zhu, 2006. "Up Close and Personal: Investor Sophistication and the Disposition Effect," Management Science, INFORMS, vol. 52(5), pages 726-740, May.
    13. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, Elsevier.
    14. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, Oxford University Press, pages 41-71.
    15. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, March.
    16. Sousa, Yannick Ferreira De & Munro, Alistair, 2012. "Truck, barter and exchange versus the endowment effect: Virtual field experiments in an online game environment," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 482-493.
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    Citations

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    Cited by:

    1. Chang, Tom & Gross, Tal, 2014. "How many pears would a pear packer pack if a pear packer could pack pears at quasi-exogenously varying piece rates?," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 1-17.
    2. Lindsey, Robin, 2011. "State-dependent congestion pricing with reference-dependent preferences," Transportation Research Part B: Methodological, Elsevier, vol. 45(10), pages 1501-1526.
    3. repec:eee:jeborg:v:141:y:2017:i:c:p:164-176 is not listed on IDEAS
    4. Tanjim Hossain & John A. List, 2012. "The Behavioralist Visits the Factory: Increasing Productivity Using Simple Framing Manipulations," Management Science, INFORMS, vol. 58(12), pages 2151-2167, December.
    5. Reto Foellmi & Stefan Legge & Lukas Schmid, 2016. "Do Professionals Get It Right? Limited Attention and Risk‐taking Behaviour," Economic Journal, Royal Economic Society, vol. 0(592), pages 724-755, May.
    6. DeVault, Luke & Sias, Richard, 2017. "Hedge fund politics and portfolios," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 80-97.
    7. repec:eee:wdevel:v:98:y:2017:i:c:p:447-466 is not listed on IDEAS
    8. Börjesson, Maria & Eliasson, Jonas, 2014. "Experiences from the Swedish Value of Time study," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 144-158.
    9. Sousa, Yannick Ferreira De & Munro, Alistair, 2012. "Truck, barter and exchange versus the endowment effect: Virtual field experiments in an online game environment," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 482-493.
    10. Omar Al-Ubaydli & John A. List, 2016. "Field Experiments in Markets," NBER Working Papers 22113, National Bureau of Economic Research, Inc.
    11. Jetter, Michael & Walker, Jay K., 2016. "Anchoring in Financial Decision-Making: Evidence from the Field," IZA Discussion Papers 10151, Institute for the Study of Labor (IZA).
    12. Herweg, Fabian & Karle, Heiko & Müller, Daniel, 2014. "Incomplete Contracting, Renegotiation, and Expectation-Based Loss Aversion," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100473, Verein für Socialpolitik / German Economic Association.
    13. Arbel, Yuval & Ben-Shahar, Danny & Gabriel, Stuart, 2014. "Anchoring and housing choice: Results of a natural policy experiment," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 68-83.
    14. repec:eee:eejocm:v:24:y:2017:i:c:p:36-50 is not listed on IDEAS
    15. Yuval Arbel & Danny Ben-Shahar & Stuart Gabriel, 2016. "Are The Disabled Less Loss Averse? Evidence From A Natural Policy Experiment," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1291-1318, April.
    16. Jetter, Michael & Walker, Jay K., 2017. "Gender Differences in Competitiveness and Risk-Taking among Children, Teenagers, and College Students: Evidence from Jeopardy!," IZA Discussion Papers 11201, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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