Do Anomalies Disappear in Repeated Markets?

Abstract

There is some evidence that, as individuals participate in repeated markets, ‘anomalies’ tend to disappear. One interpretation is that individuals – particularly marginal traders – are learning to act on underlying preferences which satisfy standard assumptions. An alternative interpretation, the ‘shaping’ hypothesis, is that individuals’ preferences are adjusting in response to cues given by market prices. The paper reports an experiment designed to discriminate between these hypotheses with particular reference to the disparity between willingness to pay and willingness to accept.

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