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  Buying and Selling Risk: An Experiment Investigating Evaluation Asymmetries

Güth, W., Ploner, M., & Soraperra, I. (2016). Buying and Selling Risk: An Experiment Investigating Evaluation Asymmetries. Review of Behavioral Economics, 3(3/4), 389-419.

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 Creators:
Güth, Werner1, Author              
Ploner, M., Author
Soraperra, I., Author
Affiliations:
1Max Planck Institute for Research on Collective Goods, Max Planck Society, ou_2173688              

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Free keywords: WTP-WTA gap, Risk, Elicitation mechanisms, Probability weighting
 JEL: D81 - Criteria for Decision-Making under Risk and Uncertainty
 JEL: D03 - Behavioral Microeconomics: Underlying Principles
 JEL: C91 - Laboratory, Individual Behavior
 Abstract: We experimentally investigate the Willingness To Pay (WTP)- Willingness To Accept (WTA) gap in the evaluation of risky assets, i.e., binary monetary lotteries. We compare the random price mechanism and an elicitation method preserving truly social trading, without theoretically sacrificing mutual incentive compatibility. The usual asymmetry in evaluation by sellers and buyers is confirmed, for both elicitation mechanisms. An econometric estimation sheds new light on the cause: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.

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 Dates: 20162016
 Publication Status: Published in print
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 Rev. Type: Peer
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Title: Review of Behavioral Economics
Source Genre: Journal
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Pages: - Volume / Issue: 3 (3/4) Sequence Number: - Start / End Page: 389 - 419 Identifier: -