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Endogenous Preferences and Conformity: Evidence from a Laboratory Experiment

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Abstract

We repeatedly elicited individuals? Willingness to Accept (WTA) evaluations for an auctioned bad in an experimental setting in which truthful revelation is the (weakly) dominant strategy. We investigate whether the observation of supposedly irrelevant signals (the market price, the asks at either the bottom or the top of the distribution of asks) affect the elicited values. Our experimental sample was made up of 162 subjects partitioned in 18 independent markets characterized by different informational conditions. Our analysis provide two main findings. First, individuals? WTA evaluations are remarkably driven by a strong although unexpected tendency to conform to the asks either at the bottom or the top of the distribution by a factor of 44-66%. Second, although a clear tendency to adapt one?s own ask to the market price (Shaping effect) emerges when no other information is being provided, the provision of information about the actual behavior of well identified (groups of) individuals more than halves its magnitude, suggesting that this effect may also qualify as a peculiar case of conformity. We conjecture that in the context at hand conformity emerges as an adaptive response to a problem of preferences imprecision. Our results are identified by means of a methodology not yet employed in the field, which helps in distinguishing between the dynamic and the asymptotic features of preference formation in the presence of either adaptive or rational expectations. The overall evidence suggests a decisive role for market interactions in the definition of preferences.

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  • Sergio Beraldo & Valerio Filoso & Marco Stimolo, 2014. "Endogenous Preferences and Conformity: Evidence from a Laboratory Experiment," CSEF Working Papers 384, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:384
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Endogenous preferences
      by chris in Stumbling and Mumbling on 2015-01-08 00:26:55

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    Keywords

    Endogenous preferences; Shaping effect; Conformity; Experimental Vickrey auction;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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