25 - preference reversal Flashcards
what is preference reversal
- choice task and valuation task
- p bet, $ bet
what does PR imply
that people have different preferences in different types of tasks
or preferences are only constructed when facing the task
what is auction market form used for
to infer subjects valuations of traded objects
what is standard preference reversal
- they are not consistent with their preferences
- choose P bet but place higher value on $ bet
what is the problem with auctions
incentive not to bid your true valuation because you want to maximise your buyers surplus
- incentive to make bids less than the value
- b = v weakly dominated by b < v
why is it important to make sure there is no incentive to shave your bid
because we want to use auctions to elicit true valuations of traded objects
how do you generate an incentive compatable auction
different price from winning bid
Braga et al 2009
design
- P bet, S bet pair
- subjects choose, 10 valuations, choose, 10 valuations, choose
- valuations - bids in selling auction = lowest price you would sell lottery to experimenter
- experimenter buys from people with lowest bids
- incentive for bid = true valuation
what are the 2 treatmengts
- feedback = lottery played out publicly after each auction - learn if they win/dont sell
- no feedback = lotteries played at end of experiment
Braga results
no feedback
market experience only
- P bet bids stable
- $ bids fall steadily = better understanding of experiment, response to experiencing failure to sell
- standard PR more frequent than counter
- pattern of PR similar over time
Braga results
feedback
outcome experience and market experience
- P bids rise
- $ bids fall faster and further than no feedback
- by end of 10 rounds standard PR less than counter PR
Braga concluding
experienece of repeated auctions shifts subjects valuations of the $ bet
with feedback - outcome and market experience eliminates standard PR anomaly
