Do markets reveal preferences - or shape them?
Andrea Isoni (),
Peter Brooks (),
Graham Loomes () and
No 11-03, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.
Standard economic analysis assumes that preferences are independent of markets. However, there is evidence suggesting that price information can influence preferences. We investigate the hypothesis that markets do not simply allow agents to reveal their preferences, but actually help to shape them. Using a demand- revealing market institution, we find strong support for this shaping hypothesis. Monetary valuations are significantly affected by price feedback and divergent price expectations. These effects are not entirely eliminated by further market experience. Our results suggest that preferences may be characterised by considerable imprecision and may be influenced by market prices in predictable ways.
Keywords: Shaping effects; repeated markets; price sensitivity; preference imprecision (search for similar items in EconPapers)
JEL-codes: C81 C91 D44 (search for similar items in EconPapers)
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Journal Article: Do markets reveal preferences or shape them? (2016)
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