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Monetary Valuations in Repeated
Markets: Do Prices Matter?
Andrea Isoni
CREED-CEDEX-UEA
Meeting on Experimental Economics
Amsterdam, 5th and 6th June 2008
Joint with: P. Brooks, G. Loomes and R. Sugden
Outline
1.
2.
3.
4.
5.
The issues
Research questions
The Experiment
Results
Conclusion
The issues
Anomalies reduced in markets
WTA/WTP disparity (e.g. Coursey et al., 1987; Shogren et
al., 1994, 2001; Loomes et al., 2003, 2007)
Preference reversal (Cox and Grether, 1996; Braga et al.,
2006)
Shaping effects
Decay compatible with ‘price following’ (e.g.
Shogren et al., 2001; Cox and Grether, 1996; Knetsch 2001,
Loomes et al., 2003,)
Anchoring
Anchoring manipulations persist after market
repetition (Ariely et al., 2003)
Price sensitivity and ‘bad-deal’ aversion
A model with in-built shaping effects (Isoni, 2008)
1. The issues
2. Research
questions
3. The experiment
4. Results
5. Conclusion
Research questions
Do market prices shape valuations?
1. The issues
Does market interaction eliminate the effect of
external manipulations?
Shaping effects
Anchoring
2. Research
questions
3. The experiment
4. Results
5. Conclusion
General ability of repeated markets to reveal
consistent preferences
The Experiment
Test 1
Test 2
Test 3
Mixed markets
Homogeneous
markets
High/low prompt
markets
Shaping effects
Persistence of
shaping
Persistence of
anchoring
Median-price selling auctions repeated 8 times
Lottery tickets
5/7 players
A median price selling auction with 7 traders
asks
a1
a2
Sell item
a3
a4
a5
a6 a7
Do not sell item
1. The issues
2. Research
questions
3. The experiment
4. Results
5. Conclusion
The Experiment
TEST 1: MIXED MARKETS
1. The issues
Low-lottery
(L)
Medium-lottery
(M)
High-lottery
(H)
(£2, 0.8; £9, 0.2)
(£7, 0.5; £9, 0.5)
(£7, 0.2; £14, 0.8)
3 traders
1 trader
3 traders
2. Research
questions
3. The experiment
4. Results
5. Conclusion
Valuations constrained to ranges of prizes
Max 3 values below £7
Max 3 values above £9
Price constrained between £7 and £9 (more)
High feedback for L traders – shape up
Low feedback for H traders – shape down
Compare to control markets (all same lottery)
The Experiment
Controlling price feedback in mixed markets
1. The issues
2. Research
questions
H = (£7, 0.2; £14, 0.8)
3. The experiment
M = (£7, 0.5; £9, 0.5)
L = (£2, 0.8; £9, 0.2)
5. Conclusion
£
2
9
Market price
Artificially high
feedback
7
4. Results
14
Artificially low
feedback
The Experiment
TEST 2: HOMOGENEOUS MARKETS
Traders from mixed markets re-matched according to
lottery
Compare to control markets
1. The issues
2. Research
questions
3. The experiment
TEST 3: HIGH/LOW PROMPT MARKETS
Anchoring manipulation
before market starts
E = (£1, 0.95; £50, 0.05)
High vs. low prompt:
do they converge?
Predict price from range
High prompt
Low Prompt
£20 or more
£1 to £2
£19.90 to £15
£2.10 to £3
£14.90 to £10
£3.10 to £4
£9.90 to £5
£4.10 to £5
£4.90 to £1
£5.10 or more
4. Results
5. Conclusion
Results
Lab: Social Science for the Environment Virtual Reality
and Experimental Laboratories (SSEVREL) of the
University of East Anglia
Sessions: 18 overall
1. The issues
2. Research
questions
3. The experiment
Participants: 204 subjects from general student
population
4. Results
5. Conclusion
Duration: about 1 hour 20 minutes per session
Earnings: £7.50 on average
Software: z-Tree (Fischbacher, 2007)
Results
Valuations for lottery L
1. The issues
9
2. Research
questions
8
Values (£)
3. The experiment
7
4. Results
6
5. Conclusion
5
4
3
mixed market vs. control market
homogeneous market vs.
control market
2
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery L
1. The issues
9
2. Research
questions
8
Values (£)
3. The experiment
7
4. Results
6
5. Conclusion
5
4
3
mixed market vs. control market
homogeneous market vs.
control market
2
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery L
1. The issues
9
2. Research
questions
8
Values (£)
3. The experiment
7
4. Results
6
5. Conclusion
5
4
3
mixed market vs. control market
homogeneous market vs.
control market
2
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery L
1. The issues
9
2. Research
questions
8
Values (£)
3. The experiment
7
4. Results
6
5. Conclusion
5
4
3
mixed market vs. control market
homogeneous market vs.
control market
2
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery H
14
1. The issues
2. Research
questions
homogeneous market vs.
control market
mixed market vs. control market
13
3. The experiment
Values (£)
12
4. Results
5. Conclusion
11
10
9
8
7
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery H
14
1. The issues
2. Research
questions
homogeneous market vs.
control market
mixed market vs. control market
13
3. The experiment
Values (£)
12
4. Results
5. Conclusion
11
10
9
8
7
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery H
14
1. The issues
2. Research
questions
homogeneous market vs.
control market
mixed market vs. control market
13
3. The experiment
Values (£)
12
4. Results
5. Conclusion
11
10
9
8
7
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
Valuations for lottery H
14
1. The issues
2. Research
questions
homogeneous market vs.
control market
mixed market vs. control market
13
3. The experiment
Values (£)
12
4. Results
5. Conclusion
11
10
9
8
7
0
1
2
3
4
5
6
7
8
9
Auction period
10
11
12
13
14
15
16
17
Results
To recap
TEST 1
Large shaping effects, stronger when feedback is
artificially high (L) than when it is low (H)
Asymmetry compatible with ‘bad-deal’ aversion
- when price is high, valuations pulled up to avoid bad deals
(L)
- when price is low, valuations pulled downwards to make
good deals (H)
TEST 2
Strong de-shaping for high feedback (L), but still
significant difference after 8 rounds
General persistence for low feedback (H)
Some tendency to underlying values/market discipline?
1. The issues
2. Research
questions
3. The experiment
4. Results
5. Conclusion
Results
1. The issues
Valuations for lottery E - High prompt
13
2. Research
questions
12
3. The experiment
11
4. Results
Value (£)
10
5. Conclusion
9
8
7
6
5
4
3
0
1
2
3
4
5
Auction Period
6
7
8
9
Results
1. The issues
Valuations for lottery E - Low prompt
2. Research
questions
13
12
3. The experiment
11
4. Results
Value (£)
10
5. Conclusion
9
8
7
6
5
4
3
0
1
2
3
4
5
Auction Period
6
7
8
9
Results
1. The issues
Valuations for lottery E
13
2. Research
questions
12
3. The experiment
11
4. Results
Value (£)
10
5. Conclusion
9
8
7
6
5
4
3
0
1
2
3
4
5
Auction Period
6
7
8
9
Results
To recap
1. The issues
TEST 3
Strong and persistent effect of prompt on valuations
2. Research
questions
3. The experiment
Effect possibly reinforced by group-specific feedback (a
form of shaping?)
- valuations not significantly different across trading groups
in period 1
- significant differences arise in last period
4. Results
5. Conclusion
Conclusion
Monetary valuations are malleable
- Via price feedback (especially if high)
- Via anchoring manipulations
Market forces do not eliminate these effects
- Shaping effects mostly persist when feedback is artificially
low, and are somewhat eroded when it is artificially high
- Anchoring effects persist and are possibly reinforced
through group-specific feedback
Prices DO matter in markets
Markets do not necessarily reveal consistent preferences
(provided such preferences exist)
1. The issues
2. Research
questions
3. The experiment
4. Results
5. Conclusion
Thank you!