Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries

Werner Güth (), Matteo Ploner and Ivan Soraperra

No 4575, CESifo Working Paper Series from CESifo

Abstract: Experimental studies of the WTP-WTA gap avoid social trading by implementing an incentive compatible mechanism for each individual trader. We compare a traditional random price mechanism and a novel elicitation mechanism preserving social trading, without sacrificing mutual incentive compatibility. Furthermore, we focus on risky goods - binary monetary lotteries - for which asymmetries in evaluations are more robust with respect to experimental procedures. For both elicitation mechanisms, the usual asymmetry in evaluation by sellers and buyers is observed. An econometric estimation sheds new light on its causes: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.

Keywords: WTP-WTA gap; risk; elicitation mechanisms; probability weighting (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Related works:
Working Paper: Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4575

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