A Survey-Based Procedure for Measuring Uncertainty or Heterogeneous Preferences in Markets, with Application to a New Test for Common Values

Posted: 12 Feb 2008 Last revised: 7 Mar 2008

Pai-Ling Yin

Marshall School of Business, University of Southern California

Date Written: January 24, 2008

Abstract

The effects of heterogeneous preferences or uncertainty about item values on the variance of dependent variables (e.g., auction prices; retail price dispersion; or investment choices in stocks, R&D, or education) are usually relegated to the error term, which a) confounds these effects with other drivers of the error term and b) could lead to heteroskedasticity at best or omitted variable bias at worst. This paper shows how surveys can generate a measure of the amount of information or heterogeneity of preferences in a market by measuring the distribution of private information signals in eBay online auctions for computers. Regressions utlizing this measure produce significantly different results than those that rely on hedonic measures to control for heterogeneity alone. Furthermore, this measure provides a new way to test for the presence of a common values component in auctions.

Keywords: surveys, auctions, heterogeneity, preferences, uncertainty, distribution, hedonic, information, common values, private values, bidders

JEL Classification: C42, C81, D44, D8, D82, L15

Suggested Citation

Yin, Pai-Ling, A Survey-Based Procedure for Measuring Uncertainty or Heterogeneous Preferences in Markets, with Application to a New Test for Common Values (January 24, 2008). Available at SSRN: https://ssrn.com/abstract=741345 or http://dx.doi.org/10.2139/ssrn.741345

Pai-Ling Yin (Contact Author)

Marshall School of Business, University of Southern California ( email )

United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,408
PlumX