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Overview

Economists, psychologists, and marketers are interested in determining the monetary value people place on non-market goods for a variety of reasons: to carry out cost-benefit analysis, to determine the welfare effects of technological innovation or public policy, to forecast new product success, and to understand individual and consumer behavior. Unfortunately, many currently available techniques for eliciting individuals' values suffer from a serious problem in that they involve asking individuals hypothetical questions about intended behavior. Experimental auctions circumvent this problem because they involve individuals exchanging real money for real goods in an active market. This represents a promising means for eliciting non-market values. Lusk and Shogren provide a comprehensive guide to the theory and practice of experimental auctions. It will be a valuable resource to graduate students, practitioners and researchers concerned with the design and utilization of experimental auctions in applied economic and marketing research.

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Editorial Reviews

From the Publisher
'Lusk and Shogren have developed an indispensable guide to an important methodology that is growing in relevance and significance in economics, marketing, psychology and public policy research. Their book is both technically strong and very accessible, even for the non-specialist. The authors have filled the book with interesting and compelling examples that bring the method to life and demonstrate its applicability. Any scholar interested in understanding how individuals value non-market options should have this book on their shelf.' David W. Stewart, Robert E. Brooker Professor of Marketing, Marshall School of Business, University of Southern California

'These well-qualified authors provide a thorough treatise on the design and application of auction procedures as instruments for measuring the value of new or non-marketed commodities, rights and services - perhaps the most important development in experimental auctions since the first tests over 25 years ago.' Vernon L. Smith, winner of the 2002 Nobel Prize for Economics and Professor of Economics and Law, George Mason University

'The book is a comprehensive guide to the theory and practice of experimental auctions. It can be a useful source to graduate students, practitioners and researchers concerned with the design and application of experimental auctions in applied economics, psychology and marketing research. Each chapter contains valuable material drawn from the authors experience of working with experimental auctions. The authors explain underlying theories, discuss practical problems, present the current state of the knowledge on experimental auctions, and do all this in a manner designed to make the presented topics easy to understand and implement.' Zentralblatt MATH

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Product Details

Meet the Author

Jayson L. Lusk is Professor and Willard Sparks Endowed Chair in the Department of Agricultural Economics, Oklahoma State University.

Jason F. Shogren is Stroock Distinguished Professor of Natural Resource Conservation and Management, and Professor of Economics and Finance, University of Wyoming.

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Read an Excerpt


Cambridge University Press
9780521855167 - Experimental Auctions - Methods and Applications in Economic and Marketing Research - by Jayson L. Lusk and Jason F. Shogren
Excerpt



1 Introduction




1.1 Introduction




Our choices reflect our values. People reveal their relative values when they choose to spend an extra hour at work rather than at the opera; purchase more groceries rather than extra MP3s or drop extra change into a jar promoting a charity at the check-out line rather than buying a candy bar. Economists characterize the economic value of these choices by determining the rate at which a person is willing to trade one good or resource for another. This rate is captured in a person’s maximum willingness to pay to purchase a good or in their minimum willingness to accept to sell a good. Usually, these economic values are revealed within the context of an active exchange institution like a market or auction with numerous buyers and sellers. In such exchange institutions, buyers buy when their willingness to pay exceeds price and sellers sell when their willingness to accept falls below price.

   But, how do people value new goods and services not currently bought and sold in the marketplace? These non-market goods and services include new private goods like cigarettes that have been genetically modified to possess less nicotine and diet cherry vanilla Cokewith lime as well as public goods like cleaner air in Santiago, Chile or biodiversity in Madagascar. No exchange institution exists for buyers and sellers to make bids and offers, which would reveal people’s relative values for these non-market goods. But there are policymakers and business managers who want information on the potential demand for these goods; they want to know if the perceived benefits from the products outweigh the costs to provide them.

   Likewise, economists, psychologists, and marketers are also interested in eliciting people’s values for both market and non-market goods. Economists elicit values to conduct applied cost-benefit analysis related to public good provision, and to estimate the welfare effects of technological innovation and public policy (see e.g., Boardman et al., 2005). Psychologists and behavioral economists want to learn about people’s values to understand the degree to which decisions are consistent with preferences and beliefs and to offer refinements to economic theory. This work focuses on how people’s values can be influenced by the context of the decision and how people use rules of thumb to guide how they value goods (see Kahneman and Tversky, 2000). Marketing experts are interested in eliciting values to better understand consumer preferences, forecast new product success, and measure effectiveness of promotional activities, which in turn can help reduce the high failure rate of new products and the significant costs of advertising (see Wertenbroch and Skiera, 2002).

   Over the last four decades, researchers have developed many value elicitation methods to tease out how people value various goods and services. These methods can be broadly categorized as revealed or stated preference methods (see Hanley et al., 2006 for an overview). Revealed preference methods use existing market data to derive implicit values for a good, for example hedonic pricing, travel costs. Revealed preferences work when the good already exists, albeit indirectly, in the market. For example, while a natural wonder such as the Grand Canyon cannot be directly bought and sold, we can observe how far people drive and what they give up in terms of opportunity cost of time to visit the Canyon. By detecting systematic patterns from these observations, one can indirectly determine people’s value for the park. Another example: the number of bathrooms in a house is not traded alone in the market; but by calculating the difference in the sales price of a two-bathroom home and the sales price of an otherwise identical one-bathroom home, we can indirectly determine people’s values for an extra bathroom. The upside of revealed preference methods is that real choices are examined. The downside of revealed preference methods is that valuation is indirect and must be inferred from empirical patterns.

   In contrast, stated preference methods use public opinion surveys or comparative choice trials that ask a person, directly or indirectly, to state his or her value for the new good or service. The upside of stated preference methods is that the researcher can create a hypothetical market where a person can, in theory, buy or sell any good or service. The stated preference method is flexible enough to construct alternative potential scenarios such that demand for the good can be understood given changes in market and non-market conditions. A well known downside of stated preference methods, regardless of how well the survey is designed and executed, is that people know they are valuing a hypothetical change in the good or service. The absence of market discipline, which takes the form of budget constraints and availability of substitutes in the real world, creates an environment conducive to questionable responses. Values elicited from hypothetical surveys have exhibited many inconsistencies such as a lack of responsiveness to the scale and scope of proposed benefits and a tendency for people to promise to pay significantly more than they actually do when asked to shell out the money, (see Diamond and Hausmann, 1994 and Hanemann, 1994 for a discussion of the pros and cons of contingent valuation).

   Traditional approaches used to elicit valuations suffer from several shortcomings. Revealed preference methods are indirect and require several simplifying assumptions to translate observed behavior into valuations. At worst, stated preference methods are open to strategic manipulation by the participant. At best, the method does not provide incentives for respondents to invest sufficient cognitive effort when thinking about their valuation decisions. What is needed is an approach that combines the advantages of revealed and stated preference methods – our world of experimental auctions.



1.2 Why experimental auctions?


Many stated preference methods involve people hypothetically rating, ranking, or choosing between competing products or alternatives. The implicit assumption is that people perceive no gain or loss from stating their preferences strategically or that people answer such hypothetical questions truthfully. To the extent people believe their responses are inconsequential, that is researchers will not use their responses to formulate public policy or business strategy, one response is as good as another from an economic standpoint because all responses have the same effect on a person’s level of utility. While people might try to answer a question sincerely, even if they believe their response to be inconsequential, standard economic models of individual decision making have nothing to say about inconsequential choices. Even under the maintained hypothesis of truthful responses, people have little incentive to expend cognitive effort on decisions involving hypothetical stated preferences making elicited values more “noisy” and systematically biased than they might otherwise be.

   A more likely case is that people believe there is some chance that their responses are consequential and will be used by researchers to inform federal and business policy. In such cases, a person can benefit by offering non-truthful answers to survey questions in an attempt to influence the price, quality, and availability of future product offerings. When such incentives exist, mechanisms are needed to either align individuals’ incentives with the researcher’s or to impose some cost on people for offering responses that deviate from their true preferences. Over the past decade, evidence has accumulated indicating that people overstate the amount they are willing to pay when asked hypothetical valuation questions relative to when real money is on the line; stating values two to twenty times greater in hypothetical questions relative to non-hypothetical valuation questions (List and Gallet, 2001).

   As a consequence, many applied economists have turned to experimental auctions to elicit consumer valuations for new goods and services (see Bohm, 1972; Brookshire and Coursey, 1987; Hoffman et al., 1993; Shogren et al., 1994; Lusk et al., 2001a). The advantage of experimental auctions over other value elicitation methods is that they put people in an active market environment where they can incorporate market feedback and where there are real economic consequences to stating preferences that differ from what they actually want. This is not to say that people cannot misrepresent their valuations in an experimental auction, only that so-called incentive compatible mechanisms help impose a price on people if they choose to send “signals” to researchers by bidding in a manner that deviates from their real value. In addition, researchers can also control and vary the amount of market-like feedback provided to bidders (e.g., posted market clearing prices, prices of outside options) to examine how robust their bidding behavior is to exogenous contextual changes in the auction environment.

   Experimental auctions also address the non-market valuation challenge – when an experimental auction is held, a market is created (albeit a stylized one). In experimental auctions, bids are revealed preferences obtained in a real market with real products and real money. Experimental auctions use real money and real goods to create a market where people’s attention is focused on the valuation task. Experimental auctions have advantages over stated preference methods because an exchange mechanism (e.g., Vickrey’s second price auction) is used which creates incentives for people to think about what they will actually pay for the good or service. Experimental auctions have advantages over revealed preference methods because valuations for a good are directly obtained.

   Further, experimental auctions provide a convenient way to determine each person’s willingness to pay. In an experimental auction, each person submits a bid that, in theory, is equal to their value for the good. This can be contrasted with most other value elicitation techniques, which rely on statistical models and assumptions about people’s utility functions to generate probability statements about valuations. For example, “best practices” in contingent valuation requires the use of a so-called single-bounded dichotomous choice question wherein a person states (yes or no) whether they are willing to pay a given amount for a good. All that can be surmised from such responses is whether willingness to pay is greater than or less than the given dollar amount. As shown by Hanemann (1984), assumptions must be made about the form of a representative utility function and the distribution of errors in the random utility model for the yes/no responses to be meaningfully used.

   Other stated preference methods such as conjoint analysis require similar assumptions to arrive at valuations (see Louviere et al., 2000). While heterogeneity can be incorporated in discrete choice models by investigating how willingness to pay varies by measured demographics, experience has shown that such measures typically explain only a small percentage of variation in valuations. In addition, advances in econometric techniques, such as random parameter models, mixed logit models, and hierarchical Bayes models, permit one to derive individual-level valuations from discrete choice responses (see Allenby and Rossi, 1999; Huber and Train, 2001). Such approaches, however, require assumptions about a functional form for the utility function and assumptions about the joint distribution of preferences. Our point is that relative to other value elicitation techniques, experimental auctions provide the richest description of heterogeneity in valuations across people and goods with minimal assumptions.

   This is a key point given the increasing recognition that economists need to better understand the degree of heterogeneity in valuations. Heckman (2001, p. 674) stated in his Nobel Lecture that “[t]he most important discovery was the evidence on the pervasiveness of heterogeneity and diversity in economic life. When a full analysis was made of heterogeneity in response, a variety of candidate averages emerged to describe the ‘average’ person, and the long-standing edifice of the representative consumer was shown to lack empirical support.” Identifying and understanding valuation heterogeneity is important for a number of reasons. First, market segmentation strategies rely on grouping individuals with similar preferences such that marketing efforts can be stylized for each segment. Experimental auctions can be used to understand how to group people based on revealed values. Second, to implement various models of price discrimination, businesses need accurate information on the distribution of valuations (see the vertical differentiation models such as that in Mussa and Rosen, 1978). Finally, properly characterizing heterogeneity is important to: determine, without bias, the welfare effects of public policy (see Graff Zivin, 2006; Giannakas and Fulton, 2002), identify whether firms practice anti-competitive behavior (see Berry et al., 1995; Nevo, 2001), and properly test economic theory which is formulated to hold, with the fewest assumptions, at the individual level (see Heckman, 2001; Lou, 2002).

1.3 What is an experimental auction?




Auction-type mechanisms were originally designed to elicit people’s values for monetary lotteries. The goal was to characterize individual preferences for risk taking or to investigate the empirical validity of expected utility theory (see Becker et al., 1964). This early work was largely overlooked until three decades ago when a few researchers like Peter Bohm, Jeff Bennett, David Brookshire, Don Coursey, Jack Knetsch, and Bill Schulze began revisiting the idea of using experimental auction methods to elicit values for real goods, especially the demand for environmental protection (see Cummings et al., 1986).

   The approach developed out of the general experimental economics literature that had, for the most part, focused on induced value experiments in which people were given pre-assigned values for a fictitious good by the experimenter (see Smith, 1976, 1982 for discussions on induced value experiments in general and Coppinger et al., 1980 for induced value experiments with auctions in particular). In an induced value experiment, a person is paid earnings equal to the difference between their assigned induced value and the market price, given that a purchase is made. Induced value experiments are a powerful tool to test theory because elicited values can be directly compared with the induced value benchmark. This high level of experimental control, however, comes at a cost. By definition, induced value experiments are abstract, focusing on the allocative efficiency of the auction institution itself; these auctions do not provide information on people’s values for real-world goods and services.

   In response, researchers started applying what they learned in induced value experiments to elicit people’s homegrown values: those values that people bring into an experiment for real-world goods. Initial applications used experimental auction-type mechanisms to elicit values for items such as public TV, sucrose octa-acetate (a bitter liquid people bid to avoid tasting), and coffee mugs to study the difference between willingness-to-accept and willingness-to-pay measures of value and to determine people’s values for public goods (see Bohm, 1972; Coursey, Hovis, and Schulze, 1987; Kahneman et al., 1990). The work of Hoffman et al. (1993) and Menkhaus et al. (1992) on the demand for vacuum-packed meats was perhaps the first to use experimental auctions for marketing purposes.

   Today, experimental auctions are used around the world by applied economists, psychologists, and marketers interested in valuing new products and technologies and in investigating theoretical models of individual decision making, auctions, and valuation. The reader can explore Table 1.1 to get a better idea for how experimental auctions have been used over the last three decades. Table 1.1 chronologically lists over 100 experimental auction studies. The list helps illustrate the varied uses and expanding growth of experimental auctions used to elicit valuations. These auctions have been used for a wide variety of products. Applications range from valuing food safety (i.e., specific pathogens, biotechnology, pesticides, traceability, and growth hormones), food attributes (e.g., meat tenderness, meat color, fat content, and packaging), a variety of foods (e.g., kiwis, apples, chocolates, potatoes, corn chips, cookies, milk, and sandwiches), and a variety of non-food, high-value goods ranging from sports cards to firm business records to used cars to gasoline to Christmas gifts.

   Table 1.1 also shows that experimental auctions have been conducted for a number of non-mutually exclusive reasons: to test theory, including investigations into the willingness-to-pay/willingness-to-accept divergence, studies of preference reversals, tests of the commitment cost theory, and so on, to study methods for valuing public and private goods, including investigations of hypothetical bias, scope effects, the willingness-to-pay/willingness-to-accept divergence, studies comparing mechanisms, studies of procedural issues, and so on, and to elicit homegrown preferences, including preferences for risk and time, and the demand for new goods and services.

   When experimental auctions are used to elicit homegrown values, the researcher aims to balance control and context. Control means the researcher has control over the environment such that no unmeasured external force drives choices. That is, confounding of cause and effect is eliminated. What

Table 1.1 Examples of experimental auctions in action





  Year Author(s) Product(s) auctioned Study purpose(s) Location Publication
1   1964 Becker, DeGroot, and Marschak Lotteries Estimate risk preferences USA Behavioural Science
2   1972 Bohm Public television show Study methods for valuing public goods Sweden European Economic Review
3   1979 Grether and Plott Lotteries Study preference reversal phenomenon USA American Economic Review
4   1983 Bennett Movie Study contributions to a public good Australia Economic Analysis and Policy
5   1984 Bohm Bus route Study methods for valuing public goods Sweden Public Finance and the Quest for Efficiency
6   1986 Cummings, et al. Sucrose octa-acetate (a bitter tasting liquid), public goods Study methods for valuing public goods USA Valuing Environmental Goods: An Assessment of the CVM
7   1987 Brookshire and Coursey Tree density in a park Study methods for valuing public goods USA American Economic Review
8   1987 Brookshire et al. Strawberries Study external validity of experimental auctions USA Economic Inquiry
9   1987 Coursey et al. Sucrose octa-acetate (a bitter tasting liquid) Study WTP/WTA divergence USA Quarterly Journal of Economics
10   1988 Loewenstein Delayed cash payment Estimate time preferences USA Management Science
11   1989 Harless Lotteries Study WTP/WTA divergence USA Journal of Economic Behavior and Organization
12   1990 Kahneman, Knetsch, and Thaler Coffee mugs Study WTP/WTA divergence USA Journal of Political Economy
13   1990 Shogren Protection and insurance against monetary loss Study risk reduction mechanisms USA Journal of Risk and Uncertainty
14   1991 Crocker and Shogren Lotteries Study preference learning USA Environmental Policy and the Economy
15   1992 Boyce et al. Life of small pine tree Study WTP/WTA divergence USA American Economic Review
16   1992 Kachelmeier and Shehata Lotteries Study WTP/WTA divergence; estimate risk preferences China American Economic Review
17   1992 Menkhaus et al. Beef steaks Estimate determinants of value for vacuum packaging USA Journal of Agricultural and Resource Economics
18   1993 Buhr et al. Pork sandwich Value growth hormones and marbling USA Journal of Agricultural and Resource Economics
19   1993 Hoffman et al. Beef steaks Study procedural issues; value vacuum packaging USA Marketing Science
20   1993 McClelland et al. Insurance to avoid loss Study risk preferences; study hypothetical bias USA Journal of Risk and Uncertainty
21   1994 Bohm Used cars Study preference reversal phenomenon Sweden Empirical Economics
22   1994 Fox et al. Milk Value growth hormones USA Journal of Dairy Science
23   1994 Shogren and Crocker Protection and insurance against monetary loss Study preferences for timing of risk reduction USA Economics Letters
24   1994 Shogren et al. Candy bars, pork sandwiches Study WTP/WTA divergence USA American Economic Review
25   1995 Fox et al. Pork sandwiches Value growth hormones USA Journal of Animal Science
26   1995 Hayes et al. Pork sandwiches Value food safety USA American Journal of Agricultural Economics
27   1996 Di Mauro and Maffioletti Protection and insurance against monetary loss Study preferences for ambiguity Italy Journal of Risk and Uncertainty
28   1996 Melton et al. Pork chops Value meat color, marbling, size, and tenderness USA American Journal of Agricultural Economics
29   1997 Bateman et al. Gourmet chocolates, soft drink Study WTP/WTA divergence UK Quarterly Journal of Economics
30   1997 Bohm et al. 30 liters of gasoline Study procedural issues; compare mechanisms Sweden Economic Journal
31   1997 Frykblom Atlas Study hypothetical bias Sweden Journal of Environmental Economics and Management
32   1997 Kirby Delayed cash payment Estimate time preferences USA Journal of Experimental Psychology: General
33   1998 List and Shogren Sports cards Study hypothetical bias USA Journal of Economic Behavior and Organization
34   1998 List and Shogren Various Christmas gifts Estimate deadweight loss of Christmas USA American Economic Review
35   1998 List et al. Sports cards Study hypothetical bias USA Economics Letters
36   1998 Roosen et al. Apples Value pesticide use USA Journal of Agricultural and Resource Economics
37   1998 Rutstrm Gourmet chocolates Compare mechanisms USA International Journal of Game Theory
38   1998 Fox et al. Pork sandwiches Study hypothetical bias USA American Journal of Agricultural Economics
39   1999 List and Shogren Candy bars, pork sandwiches Study effect of price feedback on bids USA American Journal of Agricultural Economics
40   1999 Lucking-Reiley Trading cards Compare mechanisms in on-line auctions USA American Economic Review
41   2000 Frykblom and Shogren Atlas Study methods for valuing public goods Sweden Environmental and Resource Economics
42   2000 Horowitz and McConnell Binoculars, coffee mugs, flashlights Study hypothetical bias; study performance of mechanism USA Journal of Economic Behavior and Organization
43   2000 List and Lucking-Reiley Sports cards Compare mechanisms USA American Economic Review
44   2000 Shogren, List, and Hayes Candy bars, mangos, pork sandwiches Test for preference learning vs. experimental novelty USA American Journal of Agricultural Economics
45   2001 Balistreri et al. Lotteries Study hypothetical bias USA Environmental and Resource Economics
46   2001 Knetch et al. Coffee mugs Study WTP/WTA divergence Canada, Singapore Experimental Economics
47   2001 List Sports cards Study methods for valuing public goods USA American Economic Review
48   2001 Lusk et al. Beef steaks Value tenderness USA American Journal of Agricultural Economics
49   2001 Lusk et al. Corn chips Value genetically modified food USA Journal of Agricultural and Resource Economics
50   2001 Shogren et al. Candy bars, coffee mugs Study WTP/WTA divergence USA Resource and Energy Economics
51   2002 Dickinson and Bailey Beef sandwiches, pork sandwiches Value traceability, food safety, production methods USA Journal of Agricultural and Resource Economics
52   2002 Fox et al. Pork sandwiches Study effect of information about irradiation USA Journal of Risk and Uncertainty
53   2002 Huck and Weizäcker Contracts tied to other people’s choices Study people’s ability to predict others’ preferences Germany Journal of Economic Behavior and Organization
54   2002 Lange et al. Champagne Study performance of mechanism France Food Quality and Preference
55   2002 List Sports cards Study preference reversal phenomenon USA American Economic Review
56   2002 Masters and Sanogo Infant foods Estimate welfare effects of quality certification Mali American Journal of Agricultural Economics
57   2002 Noussair, Robin, and Ruffieux Corn flakes Study effects of labels on genetically modified food France Economics Letters
58   2002 Soler and Sanchez Vegetables Value organic and eco labels Spain British Food Journal
59   2002 Umberger et al. Beef steaks Value corn fed vs. grass fed beef USA Agribusiness
60   2002 Wertenbroch and Skiera Cake, pen, soft drink Study performance of mechanism Germany, USA Journal of Marketing Research
61   2003 Alfnes and Rickertsen Beef steaks Value growth hormones and country of origin Norway American Journal of Agricultural Economics
62   2003 Areily, Loewenstein, and Prelec Annoying sounds, keyboard, wine Test theory of coherent arbitrariness USA Quarterly Journal of Economics
63   2003 Cherry, Crocker, and Shogren Monetary and wildlife lotteries Study preference reversals USA Journal of Environmental Economics and Management
64   2003 Hong and Nishimura Lotteries Compare mechanisms; study mechanism performance USA Journal of Economic Behavior and Organization
65   2003 Huffman et al. Corn chips, potatoes, vegetable oil Value genetically modified food USA Journal of Agricultural and Resource Economics
66   2003 List Sports cards Study WTP/WTA divergence USA Quarterly Journal of Economics
67   2003 Loureiro, Umberger, and Hine Cookies Study procedural issues USA Applied Economics Letters
68   2003 Lusk Coffee mug, lotteries Test commitment cost theory USA American Journal of Agricultural Economics
69   2003 Stoneham, Chaudhri, and Strappazzon Land conservation contracts Value biodiversity and conservation; test-bed mechanism Australia Australian Journal of Agricultural and Resource Economics
70   2003 Umberger et al. Beef steaks Value country of origin USA Journal of Food Distribution Research
71   2004 Blondel and Javaheri Apples, wine Value organic food France Acta Horticulturae
72   2004 Carpenter, Holmes, and Matthews Over 20 items including DVD players, gift certificates, and toys Compare mechanisms in charity auctions USA IZA Discussion Paper
73   2004 Cummings, Holt, and Laury Water permits Value irrigation rights USA Journal of Policy Analysis and Modeling
74   2004 Feuz et al. Beef steaks Value tenderness and flavor USA Journal of Agricultural and Resource Economics
75   2004 Hofler and List Sports cards Study hypothetical bias USA American Journal of Agricultural Economics
76   2004 Killinger et al. Beef steaks Value color, marbling, and origin USA Journal of Animal Science
77   2004 List Sports cards Study discrimination USA Quarterly Journal of Economics
78   2004 Lunander and Nilsson Contracts for road painting Study mechanism; test-bed mechanism Sweden Journal of Regulatory Economics
79   2004 Lusk et al. Beef steaks Value meat quality; compare mechanisms; test for endowment effects USA American Journal of Agricultural Economics
80   2004 Lusk et al. Cookies Study effect of information about biotechnology France, UK, USA European Review of Agricultural Economics
81   2004 Nalley et al. Sweet potatoes Value taste, origin, and health USA Mississippi State University
82   2004 Noussair et al. Biscuits Value genetically modified food; investigate effect of tolerance levels France Economic Journal
83   2004 Noussair et al. Candy bars, cookies, orange juice Study performance of mechanism France Food Quality and Preference
84   2004a Rousu et al. Corn chips, potatoes, vegetable oil Study effect of genetically modified food tolerance limits USA Review of Agricultural Economics
85   2004b Rousu et al. Corn chips, potatoes, vegetable oil Value conflicting information on genetically modified food USA Land Economics
86   2004 Rozan et al. Apples, bread, potatoes Value metal content; compare mechanisms France European Review of Agricultural Economics
87   2004 Umberger and Feuz Beef steaks Study performance of mechanism USA Review of Agricultural Economics
88   2005 Ackert et al. Mugs Study WTP/WTA divergence USA Federal Reserve Bank of Atlanta
89   2005 Berg et al. Lotteries Estimate risk preferences; compare mechanisms USA Proceedings of the National Academy of Sciences
90   2005 Bernard Chocolates Study effect of price feedback on bids; value organic food USA Applied Economics Letters
91   2005 Bernard and Schulze MP3 player Study how people forecast future values USA Economics Bulletin
92   2005 Brown et al. Chicken sandwich Value food safety Canada Canadian Journal of Agricultural Economics
93   2005 Corrigan Coffee mug Test commitment cost theory USA Environmental and Resource Economics
94   2005 Dickinson and Bailey Beef sandwiches, pork sandwiches Value traceability, food safety, production methods Canada, Japan, UK, USA Journal of Agricultural and Applied Economics
95   2005 Ding et al. Chinese food meals Study performance of mechanism USA Journal of Marketing Research
96   2005 Hobbs et al. Beef sandwiches, pork sandwiches Value traceability, food safety, production methods Canada Canadian Journal of Agricultural Economics
97   2005 Hudson, Coble, and Lusk Lotteries Estimate risk preferences USA Agricultural Economics
98   2005 Jaeger and Harker Kiwi fruit Value new kiwi variety; value genetically modified food New Zealand Journal of the Science of Food and Agriculture
99   2005 Kassardjian et al. Apples Value genetically modified food New Zealand British Food Journal
100   2005 Lusk et al. Cookies Estimate welfare effects of biotechnology policies France, UK, USA Economics Letters
101   2005 Platter et al. Beef steaks Value meat color, marbling, size, and tenderness USA Journal of Animal Science
102   2005 Plott and Zeiler Lotteries and mugs Study WTP/WTA divergence USA American Economic Review
103   2005 Rousu et al. Cigarettes Value genetically modified cigarettes with quality improvement USA Journal of Agricultural and Applied Economics
104   2006 Cherry and Shogren Lotteries Study preferences with market-like arbitrate USA Journal of Economic Psychology
105   2006 Corrigan and Rousu Corn chips, salsa Test for endowment effects USA American Journal of Agricultural Economics
106   2006 Corrigan and Rousu Candy bars, coffee mugs Study effect of price feedback on bids USA American Journal of Agricultural Economics
107   2006 Eigenraam et al. Land conservation contracts Value biodiversity and conservation; test-bed mechanism Australia Department of Primary Industries
108   2006 Hobbs, Sanderson, and Haghiri Bison meat sandwich, beef sandwich Value bison meat; value health information Canada Canadian Journal of Agricultural Economics
109   2006 Lusk et al. Cookies Value genetically modified food France, UK, USA Agricultural Economics
110   2006 Marcellino Business records Value farm records USA Purdue University
111   2006 Marette et al. Fish Value omega 3 fatty acid and metal content France Iowa State University
112   2006 Norwood and Lusk Soft drinks Test theory of excessive choice effect USA Oklahoma State University
113   2006 Shaw, Nayga, and Silva Cookie Value information on health risk USA Economics Bulletin


Image not available in HTML version  

Figure 1.1 Experimental auctions as a balance of control and context

separates an experimental auction from other auctions is the attention given to control. Context implies that subjects have some contextual cues about why their decision might matter in a bigger world. Figure 1.1 shows several research methods that vary along the control/context spectrum. At one extreme are non-experimental data obtained from actual market transactions. Such data are valuable in the sense that they have high face validity (i.e., data are obviously useful in addressing the question at hand) and represent actual behavior of people in the markets our models attempt to emulate. The weakness of non-experimental data is that they come in aggregated form and, most problematic, it is a challenge to identify causality due to endogeneity and measurement error. At the other extreme are induced value experiments. Induced value experiments provide the control needed in non-experimental data: researchers control the market institution, the rules of exchange, the supply and demand schedules, and the level and extent of repetition and information. The problem, however, is that induced value experiments are abstract settings with little parallel to decisions in the wilds. They (purposefully) involve people making decisions devoid of natural context, that is buying and selling a redeemable token as opposed to a 1948 Gibson L-50 archtop guitar. Such an approach can create more powerful tests of treatment effects and some theoretical models. But to the extent that valuations, behavior, and constraints are context-specific, experimental data based on abstract monetary choices may bear little relation to actual choices in everyday life.



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Table of Contents

1. Introduction; 2. Theory of incentive compatible auctions and evidence from induced value experiments; 3. Value theory; 4. Conducting an experimental auction: some preliminaries; 5. Conducting experimental auctions; 6. Data analysis with experimental auction bids; 7. Valuation case studies; 8. Case studies on auction design; 9. Validity of experimental auctions; 10. Conclusion; Index.

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