No abstract

Pairwise choice, Willingness-to-pay, Willingness-to-accept, BDM mechanism, Errors, Noise, Biases, JEL classifications , C91, C81,

This paper uses a two-person linear voluntary contribution mechanism with stochastic marginal benefits from a public good to examine the effect of imperfect information on contributions. Estimates of individual risk preferences are obtained using data from second-price auctions over lotteries. The results show that limited information about the value of the public good significantly lowers average contributions in all periods but the last. Moreover, the results support the interpretation that subjects bid "as if" they were risk averse, and suggest that "as if" risk-averse behavior is negatively correlated with willingness to contribute.

This paper investigates experimentally a market inspired by two strands of literature: on herd behaviour in non-market situations, and on the aggregation of private information in markets. The first strand suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the price mechanism may cause the private information to be aggregated correctly and efficiently. This latter therefore suggests that socially undesirable behaviour may be eliminated through the market. We test this experimentally, and find that socially undesirable behaviour may result: the market is misled by agents privately optimizing.Economica (2004) 71, 637-659