On the effect of anchoring on valuations when the anchor is transparently uninformative
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On the effect of anchoring on valuations when the anchor is transparently uninformative Konstantinos Ioannidis1 · Theo Offerman1 · Randolph Sloof2 Received: 3 December 2019 / Revised: 21 July 2020 / Accepted: 18 August 2020 © The Author(s) 2020
Abstract We test whether anchoring affects people’s elicited valuations for a bottle of wine in individual decision-making and in markets. We anchor subjects by asking them if they are willing to sell a bottle of wine for a transparently uninformative random price. We elicit subjects’ Willingness-To-Accept for the bottle before and after the market. Subjects participate in a double auction market either in a small or a large trading group. The variance in subjects’ Willingness-To-Accept shrinks within trading groups. Our evidence supports the idea that markets have the potential to diminish anchoring effects. However, the market is not needed: our anchoring manipulation failed in a large sample. In a concise meta-analysis, we identify the circumstances under which anchoring effects of preferences can be expected. Keywords Anchoring · Replication · Market · Experiment · Meta-analysis JEL Classification D01 · D91 · C91
1 Introduction A wealth of evidence has accumulated questioning some of the foundations of expected utility theory, and behavioral theorists have shown how these challenges can be accommodated (Wakker 2010). At the core of standard and behavioral economic modelling remains the assumption that people are endowed with Electronic supplementary material The online version of this article (https://doi.org/10.1007/s4088 1-020-00094-1) contains supplementary material, which is available to authorized users. * Theo Offerman [email protected]
Konstantinos Ioannidis [email protected]; [email protected]
1
CREED, University of Amsterdam and Tinbergen Institute, Amsterdam, The Netherlands
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University of Amsterdam and Tinbergen Institute, Amsterdam, The Netherlands
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well articulated and stable preferences. This fundamental assumption, however, has been challenged amongst others by Ariely et al. (2003), who have shown that preferences are initially malleable by normatively irrelevant anchors. People subsequently choose consistently with these initial preferences, and thereby end up with preferences that are characterized by what Ariely et al. (2003) call “coherent arbitrariness”. For a series of products that range from familiar (like an average bottle of wine) to unfamiliar (like listening to an unpleasant sound), they find substantial anchoring effects. Economists often assign less weight to behavioral anomalies when they are obtained in non-repeated individual decision-making tasks. The line of reasoning is that anomalies may be eroded when people have relevant experience, for instance, as a result of trading in markets. To counter such skepticism, Ariely et al. (2003) included a treatment where subjects, after being exposed to an anchor, submitted a bid to avoid listening to an ann
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