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Overconfidence in the art market: a bargaining pricing model with asymmetric disinformation

Author

Listed:
  • Francesco Angelini

    (University of Bologna)

  • Massimiliano Castellani

    (University of Bologna)

  • Lorenzo Zirulia

    (University of Milan)

Abstract

This paper develops a Nash bargaining model of price formation in the art market. Agents can be naïve, if they are overconfident and either overestimate artistic quality or underestimate their uncertainty of artistic quality, or sophisticated, if they correctly use all the available information. Overconfidence turns out to have a positive impact on both the price and the average quality of the artworks traded in the market. The impact of overconfidence on expected quality is weaker than the corresponding price increase, so sellers overcharge buyers. In addition, the buyer’s (seller’s) overconfidence has a positive (negative) impact on the likelihood of trade. If many pairs of agents may bargain simultaneously, we find that seller’s market power is negatively affected by the number of sellers and positively affected by the number of buyers. If sophisticated and naïve buyers coexist, naïve buyers exert a negative externality on the sophisticated ones, increasing the price the latter pay.

Suggested Citation

  • Francesco Angelini & Massimiliano Castellani & Lorenzo Zirulia, 2022. "Overconfidence in the art market: a bargaining pricing model with asymmetric disinformation," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(3), pages 961-988, October.
    • Handle: RePEc:spr:epolit:v:39:y:2022:i:3:d:10.1007_s40888-022-00273-9
    DOI: 10.1007/s40888-022-00273-9
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    More about this item

    Keywords

    Art market; Pricing; Overconfidence; Bargaining; Information; Belief; Art trade;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature

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