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Market Experience and willingness to trade: evidence from repeated markets with symmetric and asymmetric information

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  • Luke Lindsay

Abstract

Many studies have found a gap between willingness-to-pay and willingness-to-accept that is inconsistent with standard theory. There is also evidence that the gap is eroded by experience gained in the laboratory and naturally occurring markets. This paper argues that the gap and the effects of experience are explained by a caution heuristic. This conjecture is tested in a repeated market experiment with symmetric and asymmetric information. The results support the conjecture: people do seem to use heuristics rather than reacting optimally and their behavior adjusts slowly when the environment changes.

Suggested Citation

  • Luke Lindsay, 2011. "Market Experience and willingness to trade: evidence from repeated markets with symmetric and asymmetric information," ECON - Working Papers 005, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:005
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    File URL: http://www.econ.uzh.ch/static/wp/econwp005.pdf
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    Cited by:

    1. Sivan Frenkel & Yuval Heller & Roee Teper, 2018. "The Endowment Effect As Blessing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1159-1186, August.

    More about this item

    Keywords

    WTA/WTP disparity; endowment effect; market experience; bounded rationality; asymmetric information;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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