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Market Experience Eliminates Some Anomalies – And Creates New Ones

Author

Listed:
  • Jacinto Braga

    (University of Nottingham)

  • Steven Humphrey

    (University of Nottingham)

  • Chris Starmer

    (University of Nottingham)

Abstract

We report two experiments which investigate whether experience of decision-making in repeated markets purges behavior of preference reversals. We investigate two behavioral mechanisms that may be shaping bids in repeated auctions: a tendency to adjust bids towards previously observed market prices, and a tendency to reduce bids following bad market outcomes. We find little support for the former but strong support for the latter. Also, whilst 'just enough' market exposure eliminates the typical preference reversal phenomenon, continued exposure fosters the mirror image anomaly. Therefore, although market experience shapes behavior, it does not generally promote consistency with standard preference theory.

Suggested Citation

  • 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.
    • Handle: RePEc:not:notcdx:2006-19
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    More about this item

    Keywords

    preference reversal; Vickrey auction; refining; loss experience; price following;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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