What does mispricing mean?
Mispricing is the pricing of something at a level that does not properly reflect its value, cost, demand, or other relevant circumstances. In general business use, it can mean an incorrect retail or commercial price, often one that is accidentally too high or too low. In economics and finance, the term is more specialized: it describes a market price that differs materially from the asset's fundamental or fair value, whether because information is incomplete, trading is inefficient, or market conditions are distorted. Mispricing is especially common in discussions of securities, commodities, housing, insurance, and other markets where prices adjust to information and expectations. The word is useful because it separates a price being wrong in principle from a price simply being high or low. It also suggests that the error may be systematic rather than accidental, although the term does not always specify who or what caused it.
nounThe act or result of pricing something incorrectly, especially when the market price differs substantially from the item's true or fair value. In economics and finance, it may refer to an incorrect price caused by an inefficient, incomplete, or distorted market.
- The incorrect pricing of a product, service, or other item.
- A situation in which the market price of an asset or security differs from its fundamental or fair value.
"The regulator alleged that persistent mispricing in the housing market contributed to the financial crisis."
"Careful consumers can identify mispricing by comparing prices across different retailers."
"A sharp fall in the stock was interpreted by analysts as evidence of earlier market mispricing."
The plural is uncommon; the noun is often used without a plural form when discussing mispricing as a general market condition.
"The report identified several mispricings in the commodities market."
Mispricing does not always mean something is too expensive: it can also mean that a price is too low, making the market's error visible from either direction.
Reviewed by Deb Chak, Editor. AI-assisted content curated by RJS Tech Solutions LLP.
Etymology of mispricing
Mispricing is an English formation combining the prefix mis-, meaning 'incorrectly,' with pricing, the gerund of price. The element price ultimately comes through Old French from Latin pretium, meaning 'price' or 'value.' Mispricing developed as a specialized term in economics and finance, where it became especially common in discussions of markets whose prices did not accurately represent underlying value.
Related word forms
How mispricing is actually used
This is primarily an economics and finance term. It is formal and technical, but it can also be used more generally for any clearly incorrect price; in that broader use, it is less common than the everyday expression 'bad pricing'.