Author Abstract
This paper shows how surveys can be used to generate a measure of the amount of information and/or heterogeneity of preferences within a market. This measure can be employed as a regressor in empirical work where variance in the dependent variable (e.g., auction prices, retail price dispersion, or investment choices in stocks, R&D, or education) might be explained by uncertainty about the value of the item being sold or the returns to investment choice and/or heterogeneous preferences in the market. The effects of incomplete information and heterogeneous preferences 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. Furthermore, by specifically modeling the effect of this uncertainty or dispersed taste, one can estimate policy implications such as the effect of publicly introducing information into the market or selecting the pool of agents to change the distribution of preferences. I demonstrate the validity and usefulness of my survey-based procedure by using it to measure the mean and dispersion of private information signals in eBay online auctions for personal computers. I exploit a mixture of respondents with and without experience on eBay. The use of inexperienced respondents permits the survey to be implemented more quickly and with a larger number of respondents than if it were restricted to experienced respondents. The use of experienced respondents allows me to correct for potential bias from using more noisy, inexperienced responses.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: February 2006
- HBS Working Paper Number: 06-009
- Faculty Unit(s): Strategy