Reaction to Uncertainty and Market Mechanism:Experimental Evidence

Carmela Di Mauro () and Anna Maffioletti

No 01-41, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: Abstract Much of the evidence supporting the Ellsberg's paradox comes from experiments on individual choice and judgement. In this study, we address the issue whether, in market experiments, there is a tendency for anomalous behaviour to disappear or to be reduced as a consequence of market experience and feedback. We empirically test the validity of this assumption by running an auction market for the sale of both risky and uncertain prospects. We compare bidding behaviour and prices in market-like settings with valuations obtained from individual pricing tasks. We conclude that, with the repetition of the market experience, there is a tendency for subjective expected utility to perform better. However, economists' general assumption that, in laboratory experiments, poor performance of SEU is due to the lack of financial incentives or to the lack of market-like settings is by no means supported by our data.

Pages: 47 pages
Date: 2001-06-21
New Economics Papers: this item is included in nep-exp
Note: Financial support of SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Citations: View citations in EconPapers (2)

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Working Paper: Reaction to uncertainty and market mechanism: experimental evidence (2001)
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