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Much ado about extremes: An experimental test of the shaping effect of prices on preferences

Sergio Beraldo, Valerio Filoso () and Marco Stimolo

Metroeconomica, 2019, vol. 70, issue 1, 119-143

Abstract: There is evidence of a shaping effect of market prices on subjects’ evaluations in repeated private value auctions. This evidence has been traditionally interpreted as a pure behavioural phenomenon in contexts where the only available information is the market price. In this paper, we enrich the subjects’ information set by providing in treatment groups additional information on extreme asks. Our main results show a shaping effect both in the control and in the treatments and a stronger effect of the extreme information that more than halves the effect of the market price on subjects’ asks. Differently from the existing literature, we find that the provision of additional information inactivates the well‐documented tendency of the market price to fall at each auction round as a consequence of over‐asking correction. We discuss different possible mechanisms underlying this key finding.

Date: 2019
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Handle: RePEc:bla:metroe:v:70:y:2019:i:1:p:119-143