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Do markets reveal preferences - or shape them?

Author

Listed:
  • Andrea Isoni

    (University of Warwick)

  • Peter Brooks

    (Barclays Wealth)

  • Graham Loomes

    (University of Warwick)

  • Robert Sugden

    (University of East Anglia)

Abstract

Standard economic analysis assumes that preferences are independent of markets. However, there is evidence suggesting that price information can influence preferences. We investigate the hypothesis that markets do not simply allow agents to reveal their preferences, but actually help to shape them. Using a demand- revealing market institution, we find strong support for this shaping hypothesis. Monetary valuations are significantly affected by price feedback and divergent price expectations. These effects are not entirely eliminated by further market experience. Our results suggest that preferences may be characterised by considerable imprecision and may be influenced by market prices in predictable ways.

Suggested Citation

  • Andrea Isoni & Peter Brooks & Graham Loomes & Robert Sugden, 2011. "Do markets reveal preferences - or shape them?," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 11-03, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:wcbess:11-03
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    References listed on IDEAS

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    1. repec:eee:eecrev:v:94:y:2017:i:c:p:240-262 is not listed on IDEAS
    2. Sugden, Robert & Zheng, Jiwei & Zizzo, Daniel John, 2013. "Not all anchors are created equal," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 21-31.
    3. John Smith, 2012. "The endogenous nature of the measurement of social preferences," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 11(2), pages 235-256, December.
    4. Drouvelis, Michalis & Sonnemans, Joep, 2017. "The endowment effect in games," European Economic Review, Elsevier, vol. 94(C), pages 240-262.
    5. Sergio Beraldo & Valerio Filoso & Marco Stimolo, 2014. "The Shaping Power of Market Prices and Individual Choices on Preferences. An Experimental Investigation," Discussion Papers 2014/191, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    Shaping effects; repeated markets; price sensitivity; preference imprecision;

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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