Environmental and Resource Economics

, Volume 31, Issue 1, pp 35–45

Is the Experimental Auction a Dynamic Market?

Article

Abstract

Experimental auctions are generally thought of as static markets. This paper presents the results of an experimental auction designed to test whether participants’ perceptions regarding the relative difficulty of delaying or reversing a transaction outside the experimental market systematically affect their willingness-to-pay bids. The results show that auction participants’ perceptions significantly impact their bids in a manner that is consistent with real option theory. These results suggest that economists must be careful to consider the existence of outside markets when designing experimental auctions.

Keywords

commitment cost dynamic markets experimental auctions real option theory 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Cherry, T., Frykblom, P., List, J., Shogren, J., Williams, M. 2004‘Laboratory Testbeds and Nonmarket Valuation: The Case of Bidding Behavior in a Second Price Auction with an Outside OptionEnvironmental & Resource Economics29285294Google Scholar
  2. Corrigan, J. and M. Rousu (2004), ‘The Effect of Initial Endowments in Experimental Auctions’, Working Paper, Kenyon College.Google Scholar
  3. Coursey, D., Hovis, J., Schulze, W. 1987‘The Disparity Between Willingness to Accept and Willingness to Pay Measures of Value’Quarterly Journal of Economics102679690Google Scholar
  4. Davis, D., Williams, A. 1991‘The Hayek Hypothesis in Experimental Auctions: Institutional Effects and Market Power’Economic Inquirys29285294Google Scholar
  5. Fox, J., Hayes, D., Shogren, J. 2002‘Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions’Journal of Risk and Uncertainty247595Google Scholar
  6. Hayes, D., Shogren, J., Shin, S., Kliebenstein, J. 1995‘Valuing Food Safety in Experimental Auction Markets’American Journal of Agricultural Economics774053Google Scholar
  7. Harrison, G. 1992‘Theory of Misbehavior of First-Price Auctions: Reply’American Economic Review8214261443Google Scholar
  8. Harrison, G., Harstad, R., Rutström, E. 2004‘Experimental Methods and Elicitation of Values’Experimental Economics7123140Google Scholar
  9. Hoffman, E., Menkhaus, D., Chakravarti, D., Field, R., Whipple, G. 1993‘Using Laboratory Experimental Auctions in Marketing Research: A Case Study of New Packaging for Fresh Beef’Marketing Science12318338CrossRefGoogle Scholar
  10. Kahneman, D., Knetsch, J., Thaler, R. 1990‘Experimental Tests of the Endowment Effect and the Coase Theorem’Journal of Political Economy9813251348Google Scholar
  11. Kling, C., J. List and J. Zhao (2003), ‘Commitment Cost and the Basic Independence Assumption: Evidence from the Field’, Working Paper, Iowa State University.Google Scholar
  12. Kolstad, C., Guzman, R. 1999‘Information and the Divergence between Willingness to Accept and Willingness to Pay’Journal of Environmental Economics and Management386680Google Scholar
  13. Lusk, J. 2001‘In-Store Valuation of Steak Tenderness’American Journal of Agricultural Economics83539550Google Scholar
  14. Lusk, J. 2003‘An Experimental Test of the Commitment Cost Theory’American Journal of Agricultural Economics8513161322Google Scholar
  15. Lusk, J., Feldkamp, T., Schroeder, T. 2004‘Experimental Auction Procedure: Impact On Valuation of Quality Differentiated Goods’American Journal of Agricultural Economics86389405Google Scholar
  16. Noussair, C., Robin, S., Ruffieux, B. 2002‘Do Consumers Not Care about Biotech Foods or Do They Just Not Read the Labels?’Economics Letters754753Google Scholar
  17. Noussair, C., Robin, S., Ruffieux, B. 2004‘Do Consumers Really Refuse to Buy Genetically Modified Food?’Economic Journal114102120Google Scholar
  18. Rousu, M., Huffman, W., Shogren, J., Tegene, A. 2004a‘Are United States Consumers Tolerant of Genetically Modified Foods?’Review of Agricultural Economics261931Google Scholar
  19. Rousu, M., Huffman, W., Shogren, J., Tegene, A. 2004b‘Estimating the Public Value of Conflicting Information: The Case of Genetically Modified Foods’Land Economics80125135Google Scholar
  20. Shogren, J., Crocker, T. 1994‘Rational Risk Valuation Given Sequential Reduction Opportunities’Economics Letters44241248Google Scholar
  21. Shogren, J., Shin, S., Hayes, D., Kliebenstein , James B. 1994‘Resolving Differences in Willingness to Pay and Willingness to Accept’American Economic Review84255270Google Scholar
  22. Shogren, J., List, J., Hayes, D. 2000‘Preference Learning in Consecutive Experimental Auctions’American Journal of Agricultural Economics8210161021Google Scholar
  23. Shogren, J., Margolis, M., Koo, C., List, J. 2001‘A Random nth-Price Auction’Journal of Economic Behavior and Organization46409421Google Scholar
  24. Vickrey, W. 1961‘Counterspeculation, Auctions, and Competitive Sealed Tenders’Journal of Finance16837Google Scholar
  25. Zhao, J., Kling, C. 2001‘A New Explanation for the WTP/WTA Disparity’Economics Letters73293300Google Scholar
  26. Zhao, J., Kling, C. 2004‘Willingness to Pay, Compensating Variation, and the Cost of Commitment’Economic Inquiry42503517Google Scholar

Copyright information

© Springer 2005

Authors and Affiliations

  1. 1.Department of EconomicsKenyon CollegeGambierUSA

Personalised recommendations