In this paper, we use inattention to provide a theoretical microfoundation for “game form misrecognition” in the context of the Becker-DeGroot-Marschak (BDM) mechanism. Our model provides a map between the probabilistic beliefs of individuals about game form and price offers that are made in the BDM. We use this map to show that inattention always produces a gap between Willingness-to-Accept (WTA) offers and Willingness-to-Pay (WTP) offers, even when there is no endowment effect. At the same time, we show it is possible to identify the endowment effect even when subjects are inattentive to game form. To test this approach, we elicit probabilistic beliefs about game form in an experiment that replicates the design of Cason and Plott (2014).
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