Cognitive Biases in Government Procurement – An Experimental Study

Dekel Omer () and Schurr Amos ()
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Dekel Omer: Faculty of Law, College of Law and Business, Ramat Gan, Israel
Schurr Amos: Guilford Glazer Faculty of Business and Management, Ben-Gurion University of the Negev, Beer Sheba, Israel

Review of Law & Economics, 2014, vol. 10, issue 2, 169-200

Abstract: Competitive bidding (CB) is the dominant governmental contracting mechanism by which hundreds of billions of dollars are allocated annually. We claim that when bid evaluators assess the qualitative components of competing bids while being exposed to the bid prices, a systematic bias occurs that gives an unjust advantage to the lower bidder. We term this the Lower-Bid Bias. It is then shown that this bias can be neutralized by splitting the evaluation process into two stages, whereby bid price is revealed only after the evaluation process has culminated (two-stage CB). This is demonstrated through the findings of a survey and three controlled experiments, the first to be conducted with procurement officials. We also explain why this bias is undesirable and suggest a mandatory rule, requiring two-stage CB for any competitive public procurement based on evaluation criteria other than price. Further applications of the experiments’ findings are also discussed.

Keywords: behavioral economics; public procurement; cognitive bias (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/rle-2014-0019

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