EconPapers    
Economics at your fingertips  
 

Do sellers exploit biased beliefs of buyers? An experiment

Lukas M. Wenner

Games and Economic Behavior, 2018, vol. 110, issue C, 194-215

Abstract: I study experimental markets in which sellers interact with buyers who have biased beliefs about characteristics of the product sold. I examine whether such buyers can be exploited by sellers through the use of specifically designed pricing structures. Theoretically, I show that a necessary condition for exploitation is consumer naiveté about their belief bias, otherwise they infer their biased beliefs from the sellers' actions. My main experimental result establishes that whether exploitation arises depends on how difficult it is for buyers to make such inferences. When sellers can only make take-it-or-leave-it offers, no exploitation arises. If, however, contracts are agreed upon by bilateral bargaining, sellers earn higher profits compared to the case with unbiased beliefs. I present evidence that in the former case buyers anticipate and prevent exploitation. In the latter case, the richer interaction structure makes it harder for buyers to infer the sellers' incentives, leading to exploitation.

Keywords: Biased beliefs; Consumer exploitation; Laboratory experiment; Behavioral IO; Consumer sophistication (search for similar items in EconPapers)
JEL-codes: C92 D03 D83 L15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825618300502
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:110:y:2018:i:c:p:194-215

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-05-10
Handle: RePEc:eee:gamebe:v:110:y:2018:i:c:p:194-215