Is the lure of choice reflected in market prices? Experimental evidence based on the 4-door Monty Hall problem

Siddiqi, H. (2009) Is the lure of choice reflected in market prices? Experimental evidence based on the 4-door Monty Hall problem. Journal of Economic Psychology, 30 2: 203-215. doi:10.1016/j.joep.2008.07.004


Author Siddiqi, H.
Title Is the lure of choice reflected in market prices? Experimental evidence based on the 4-door Monty Hall problem
Journal name Journal of Economic Psychology   Check publisher's open access policy
ISSN 0167-4870
1872-7719
Publication date 2009-01-01
Year available 2009
Sub-type Article (original research)
DOI 10.1016/j.joep.2008.07.004
Open Access Status Not yet assessed
Volume 30
Issue 2
Start page 203
End page 215
Total pages 13
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Subject 2002 Cultural Studies
3202 Applied Psychology
3312 Sociology and Political Science
Abstract The lure of choice is a cognitive bias with important implications for economic behavior. The question of whether this bias survives in market equilibrium is an issue that can be tackled with experimental economics methods. Here, we use the 4-door Monty Hall as a tool to measure the lure of choice both at the individual as well as the market level. We find that if individuals exhibit this bias then market prices also reflect this bias, hence, trading activity alone is not sufficient to reduce or eliminate the lure of choice. The bias, both at the individual as well as the market level, is robust to learning. If at least two traders strongly exhibit this bias, then market prices also strongly reflect this bias. This result has important implications for models with heterogeneous traders. Furthermore, the lure of choice is found to be compatible with event-style market efficiency.
Keyword 2300
Aggregation of errors
Cognitive bias
Lure of choice
Psychology of decision making
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
 
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