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Public and Private Values

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Abstract

In this paper we experimentally examine whether looking at other people's pricing decisions is a type of a decision rule that people over‐apply even when it is not applicable, as in the case of private-value goods. In Study 1, we find evidence that this is indeed the case—individual valuation of a subjective experience under full information, elicited using incentive compatible mechanism, is highly influenced by values of others. In Study 2, we find that people expect to use this rule to some degree with respect to actual consumption of goods, especially goods with some public value (music), and less so for private-value goods (noise). However, people expect to use the rule to a very large extent when they are required to express their valuation of a good using a dollar figure (Study 3). These results can shed light on price behavior as rigidities and rents.

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Boston: McGraw-Hill. Simonsohn, Uri, and Dan ArielyWhen Rational Sellers Face Nonrational Buyers: Evidence from Herding on eBay
  • Gilbert
  • T Susan
  • Gardner Fiske
  • Lindzey
Gilbert, Susan T. Fiske, and Gardner Lindzey, 323–390. Boston: McGraw-Hill. Simonsohn, Uri, and Dan Ariely. 2008. “When Rational Sellers Face Nonrational Buyers: Evidence from Herding on eBay. “ Management Science 54(9): 1624–1637.