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Preference reversals and disparities between willingness to pay and willingness to accept in repeated markets

  • Graham Loomes

    (University of Warwick)

  • Chris Starmer

    (University of Nottingham)

  • Robert Sugden

    (University of East Anglia)

Previous studies suggest that two otherwise robust 'anomalies' – preference reversals and disparities between buying and selling valuations – are eroded when respondents participate in repeated markets. We report an experiment which investigates whether this is true when factors neglected in previous studies are controlled, and which distinguishes between anomalies revealed in the behaviour of individual market participants and anomalies revealed in market prices. Our results confirm the decay of buy/sell disparities, but not of preference reversal. This raises doubts about the hypothesis that, in general, repeated markets reveal anomaly-free preferences, even among the marginal traders who determine prices.

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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 09-07.

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Date of creation: 10 Nov 2009
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Handle: RePEc:uea:wcbess:09-07
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  1. John A. List & Jason F. Shogren, 1999. "Price Information and Bidding Behavior in Repeated Second-Price Auctions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 942-949.
  2. David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 97(1), pages 277-297, March.
  3. Todd L. Cherry & Thomas Crocker & Jason F. Shogren, 2001. "Rationality Spillovers," Working Papers 01-02, Department of Economics, Appalachian State University.
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  5. Knetsch, Jack L & Sinden, J A, 1984. "Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 507-21, August.
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  8. John A. List, 2002. "Preference Reversals of a Different Kind: The "More Is Less" Phenomenon," American Economic Review, American Economic Association, vol. 92(5), pages 1636-1643, December.
  9. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
  10. Casey, Jeff T., 1991. "Reversal of the preference reversal phenomenon," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(2), pages 224-251, April.
  11. Shogren, Jason F. & Cho, Sungwon & Koo, Cannon & List, John & Park, Changwon & Polo, Pablo & Wilhelmi, Robert, 2001. "Auction mechanisms and the measurement of WTP and WTA," Resource and Energy Economics, Elsevier, vol. 23(2), pages 97-109, April.
  12. Loomes, Graham & Chris Starmer & Robert Sugden, 2002. "Do Anomalies Disappear in Repeated Markets?," Royal Economic Society Annual Conference 2002 132, Royal Economic Society.
  13. Todd L. Cherry & Jason F. Shogren, 2002. "Rationality Crossovers," Working Papers 02-03, Department of Economics, Appalachian State University.
  14. Graham Loomes & Shepley Orr & Robert Sugden, 2009. "Taste uncertainty and status quo effects in consumer choice," Journal of Risk and Uncertainty, Springer, vol. 39(2), pages 113-135, October.
  15. Sugden, Robert, 2003. "Reference-dependent subjective expected utility," Journal of Economic Theory, Elsevier, vol. 111(2), pages 172-191, August.
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  17. Jacinto Braga & Steven Humphrey & Chris Starmer, 2006. "Market Experience Eliminates Some Anomalies – And Creates New Ones," Discussion Papers 2006-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  18. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March.
  19. Seidl, Christian, 2002. " Preference Reversal," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 621-55, December.
  20. Shogren, Jason F. & Shin, Seung Youll & Hayes, Dermot J. & Kliebenstein, James, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," Staff General Research Papers 701, Iowa State University, Department of Economics.
  21. David M. Grether & James C. Cox, 1996. "The preference reversal phenomenon: Response mode, markets and incentives (*)," Economic Theory, Springer, vol. 7(3), pages 381-405.
  22. Jack Knetsch & Fang-Fang Tang & Richard Thaler, 2001. "The Endowment Effect and Repeated Market Trials: Is the Vickrey Auction Demand Revealing?," Experimental Economics, Springer, vol. 4(3), pages 257-269, December.
  23. Robin P. Cubitt & Alistair Munro & Chris Starmer, 2004. "Testing explanations of preference reversal," Economic Journal, Royal Economic Society, vol. 114(497), pages 709-726, 07.
  24. Chu, Yun-Peng & Chu, Ruey-Ling, 1990. "The Subsidence of Preference Reversals in Simplified and Marketlike Experimental Settings: A Note," American Economic Review, American Economic Association, vol. 80(4), pages 902-11, September.
  25. Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, vol. 107(443), pages 1090-1105, July.
  26. Robert Sugden, 2004. "The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences," American Economic Review, American Economic Association, vol. 94(4), pages 1014-1033, September.
  27. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
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