Wednesday, March 26, 2008

Irrational Pricing

One of the important arguments in economics/finance is whether markets are rational. In other words in a big, liquid and transparent market such as the U.S. stock market does the current price equal so kind of true value. Of course even the U.S. stock market is not fully transparent which complicates the circumstance.

The fine art market is less liquid and transparent. Prices are set by a smaller number of artist, dealers and collectors who may make pricing decisions based on other issues...such as the dealer that buy the work of their own artist at an auction just to keep the price aloft among an otherwise uninterested group of buyers.

There is an interesting interview with a behavioral economist named Dan Ariely on NPR that looks at how a variety of other elements can influence pricing.

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