Market Experience Eliminates Some Anomalies – And Creates New Ones

Jacinto Braga, Steven Humphrey and Chris Starmer
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Jacinto Braga: University of Nottingham
Steven Humphrey: University of Nottingham

No 2006-19, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, 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.

Keywords: preference reversal; Vickrey auction; refining; loss experience; price following (search for similar items in EconPapers)
JEL-codes: C91 D81 D83 (search for similar items in EconPapers)
Date: 2006-10
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Citations: View citations in EconPapers (3)

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Journal Article: Market experience eliminates some anomalies--and creates new ones (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcdx:2006-19

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