Mistaken Inference in Markets with Incomplete Information (2025-2028)
Abstract
The exponential growth of house prices in Australia may be caused in part by buyers over-paying due to incomplete information and mistaken inferences drawn from the behaviour of other buyers. This project aims to address the issue of mistaken inference, which is present in many markets in addition to real estate, by theoretically and experimentally analysing its implications for an array of negotiation mechanisms, such as auctions, bilateral bargaining and posted prices. Expected outcomes include new knowledge on the impact of mistaken inference on prices, market efficiency and welfare, which will inform policy on how to improve outcomes in markets with incomplete information when traders fall prey to inferential mistakes.
