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Market Experience Eliminates Some Anomalies – And Creates New Ones

  • Jacinto Braga

    (University of Nottingham)

  • Steven Humphrey

    (University of Nottingham)

  • Chris Starmer

    (University of Nottingham)

We report two experiments which investigate whether experience of decision-making in repeated markets purges behavior of preference reversals. We investigate two behavioral 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 behavior, it does not generally promote consistency with standard preference theory.

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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 2006-19.

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Date of creation: Oct 2006
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Handle: RePEc:not:notcdx:2006-19
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