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

Author

Listed:
  • Graham Loomes

    (Department of Economics, University of Warwick)

  • Chris Starmer

    (School of Economics, University of Nottingham)

  • Robert Sugden

    (School of Economics, University of East Anglia)

Abstract

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.

Suggested Citation

  • Graham Loomes & Chris Starmer & Robert Sugden, 2009. "Preference reversals and disparities between willingness to pay and willingness to accept in repeated markets," Discussion Papers 2009-24, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2009-24
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    Cited by:

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    2. Younjun Kim & Elizabeth Hoffman, 2018. "Pre‐Play Learning and the Preference Reversal Phenomenon," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 599-615, October.
    3. Fioretti, Guido, 2009. "Either, Or. Exploration of an Emerging Decision Theory," MPRA Paper 12897, University Library of Munich, Germany.
    4. Hammond, Peter J & Zank, Horst, 2013. "Rationality and Dynamic Consistency under Risk and Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 1033, University of Warwick, Department of Economics.
    5. Marco Stimolo & Sergio Beraldo & Salvatore Capasso & Valerio Filoso, 2022. "Consciously Uncertain: A Bayesian Analysis of Preferences Formation," Games, MDPI, vol. 13(1), pages 1-20, January.
    6. 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.
    7. Isoni, Andrea & Brooks, Peter & Loomes, Graham & Sugden, Robert, 2016. "Do markets reveal preferences or shape them?," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 1-16.
    8. Belton, Cameron A. & Sugden, Robert, 2018. "Attention and novelty: An experimental investigation of order effects in multiple valuation tasks," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 103-115.
    9. Dirk Engelmann & Guillaume Hollard, 2009. "A Shock Therapy Against the “Endowment Effect”," Discussion Papers 09-04, University of Copenhagen. Department of Economics.
    10. Berg, Nathan & Biele, Guido & Gigerenzer, Gerd, 2010. "Does consistency predict accuracy of beliefs?: Economists surveyed about PSA," MPRA Paper 26590, University Library of Munich, Germany.
    11. Beraldo, Sergio & Filoso, Valerio & Marco, Stimolo, 2013. "Endogenous Preferences and Conformity: Evidence From a Pilot Experiment," MPRA Paper 48539, University Library of Munich, Germany.
    12. Katrine Hjorth & Mogens Fosgerau, 2011. "Loss Aversion and Individual Characteristics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 573-596, August.
    13. Kim, Younjun, 2015. "Essays on firm location decisions, regional development and choices under risk," ISU General Staff Papers 201501010800005579, Iowa State University, Department of Economics.
    14. Thijs Dekker & Paul Koster & Roy Brouwer, 2014. "Changing with the Tide: Semiparametric Estimation of Preference Dynamics," Land Economics, University of Wisconsin Press, vol. 90(4), pages 717-745.
    15. Attema, Arthur E. & Brouwer, Werner B.F., 2013. "In search of a preferred preference elicitation method: A test of the internal consistency of choice and matching tasks," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 126-140.
    16. Chambers, Robert G. & Melkonyan, Tigran A., 2009. "Buy low, sell high: Price gaps and neoclassical theory," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 720-729, December.
    17. Susan Chilton & Michael Jones-Lee & Rebecca McDonald & Hugh Metcalf, 2012. "Does the WTA/WTP ratio diminish as the severity of a health complaint is reduced? Testing for smoothness of the underlying utility of wealth function," Journal of Risk and Uncertainty, Springer, vol. 45(1), pages 1-24, August.
    18. Hammond, Peter J. & Zank, Horst, 2013. "Rationality and Dynamic Consistency under Risk and Uncertainty," Economic Research Papers 270426, University of Warwick - Department of Economics.

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    More about this item

    Keywords

    preference reversal; willingness to accept; willingness to pay; repeated market;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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