One Swallow Doesn't Make a Summer: New Evidence on Anchoring Effects

Zacharias Maniadis, Fabio Tufano and John A. List

Normative economics is built on the premises that economic choices reveal individuals’ “true” underlying preferences, which are not subject to the vagaries of the decision environment. However, seminal empirical findings demonstrate that individuals’ valuations of a variety of hedonic experiences and goods are affected by anchors, namely normatively irrelevant cues. Such empirical evidence poses a real threat to traditional normative economics.

This Nottingham School of Economics working paper, published in The American Economic Review, reports an empirical investigation of the robustness of anchoring effects in economic valuations. Fabio Tufano and his co-authors revisit the seminal contribution by Ariely, Loewenstein, and Prelec (2003) and provide new empirical evidence pointing to a more modest effect of anchoring. Accordingly, it seems that the claim made by some researchers of a radical revision of economics models is premature, while more empirical evidence on anchoring should be obtained. Tufano and co-authors proceed by providing theoretical arguments showing that such non-replication should be expected. In a Bayesian framework, they highlight that relying on statistical significance as the sole criterion warranting publication leads to an excessive number of false positives. Thus, initial empirical findings should generally be considered cautiously. The model also demonstrates that the frequency of false positives depends upon statistical power, research priors, and the number of scientific investigators addressing a given novel research question. Importantly, more accurate inference can be drawn after few independent replications, which would significantly increase the likelihood of the original finding being true. Tufano and co-authors conclude their paper by calling for the adoption of concrete requirements to enhance the replicability of initial findings in favour of a self-correcting economic science characterised by cumulative knowledge growth.

The American Economic Review, “One Swallow Doesn’t Make a Summer: New Evidence on Anchoring Effects” by Zacharias Maniadis, Fabio Tufano and John A. List.

http://dx.doi.org/10.1257/aer.104.1.277

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