Flexible Valuations for Consumer Goods as Measured by the Becker-DeGroot-Marschak Mechanism

Economists, psychologists, and neuroscientists have long been interested in methods that elicit individuals' true valuations of goods. In this paper, we take 1 of the most popular of such mechanisms, the Becker-DeGroot-Marschak (BDM) procedure, and study the nature of the dependence of the valuations obtained using the BDM procedure on the distribution of prices presented to subjects when the method is implemented. In a within-subject design with products with a high market value, we show that this effect of price distribution occurs quite frequently, significantly impacts reported valuations, and is unlikely to be caused by misconceptions about the BDM procedure. This effect is largest when pricing distributions show a large peak close to an individual's average valuation of the good. A simple nonincentive-compatible subjective rating of the desirability of goods can be used to predict the likelihood that pricing distributions will influence BDM valuations; valuations for goods that subjects report to most want to purchase are most likely to be influenced by distributional structure. Our results challenge some of the dominant theoretical models of how BDM-like valuation procedures relate to standard notions of utility and shed light on how to interpret the data obtained using the BDM method.