Buying and Selling Risk: An Experiment Investigating Evaluation Asymmetries

Güth, Werner; Ploner, M.; Soraperra, I.

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Buying and Selling Risk: An Experiment Investigating Evaluation Asymmetries

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Güth, Werner
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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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.

Cite as: https://hdl.handle.net/11858/00-001M-0000-002B-ADB9-F

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.