9. Discovered Preferences Flashcards
What are the two main interpretations for why preference reversal disappears over time?
Preference discovery
Shaping of preference
What are the 3 learnings that people make in repeated markets?
-how the mechanism works
-how other people behave
-your own attitudes to outcomes or chance
What is preference discovery?
Where market experience aids the discovery of underlying preferences
What is shaping of preference?
Market experience systematically affects revealed preferences. No presumption of convergence on underlying preferences and doesn’t presume market experience in error correcting
What is price following?
Where agents are unsure of the value of some goods to them so they adjust their own valuation towards the market price
Why does it matter if it is preference discovery or preference shaping?
-discovery offers s good defence for standard economic theory
-if following takes place, this is a fundamental theoretical issue
-it would have practical implications on how to get data
Loss experience
A tendency for subjects to reduce stated valuations of lotteries, following the experience of losing
How would loss experience theoretically effect WTA($) and WTP(P)?
Loss experience tends to depress WTA($) stated valuations of lotteries following the experience of losing. Loss experience has less impact on WTP(P) because p bets usually win
Results of experiment A of BHS
-decay in $ asks in both but more decay in SPA
-decay in PR in SPA, similar to C&G
-little to no decay in PR in STLPA
-price following rejected as primary cause of bud evolution since STLPA asks don’t rise with experience
Results of experiment B of BHS
-$ bets falls with and without feedback but more so with feedback
-p bets rise slowly with feedback and are constant with no feedback
-perhaps feedback is consistent with reduction in overweighting small probability. This finding is backed up by Van de Kuilen 2009
