Hypothetical thinking and the winner's curse: An experimental investigation

Johannes Moser

No 176, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: There is evidence that bidders fall prey to the winner's curse because they fail to extract information from hypothetical events - like winning an auction. This paper investigates experimentally whether bidders in a common value auction perform better when the requirements for this cognitive issue - also denoted by contingent reasoning - are relaxed, leaving all other parameters unchanged. The overall pattern of the data suggests that the problem of irrational over- and underbidding can be weakened by giving the subjects ex ante feedback about their bid, but unlike related studies I also find negative effects of additional information.

Keywords: Hypothetical thinking; cursed equilibrium; winner's curse (search for similar items in EconPapers)
JEL-codes: C91 D03 D44 D82 D83 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-11
New Economics Papers: this item is included in nep-des and nep-exp
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https://bgpe.cms.rrze.uni-erlangen.de/files/2023/0 ... al-investigation.pdf First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bav:wpaper:176_moser

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