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Are strategies anchored?

Radosveta Ivanova-Stenzel and Gyula Seres ()

European Economic Review, 2021, vol. 135, issue C

Abstract: Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in economic strategic interactions. Using experimental auctions, we show that bidding strategies are anchored by irrelevant numbers. The announcement of a random group identification number has a positive effect on bids. We also find a strong effect of a maximal permissible bid, despite being irrelevant for a rational player: In first-price sealed-bid auctions, a higher upper bid limit increases bids, whereas, in Dutch auctions, the effect of the starting price is negative and consistent with a model that takes into account the value of time in auctions. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the sealed-bid auction crucially depends on the size of the maximal permissible bid.

Keywords: Anchoring bias; Auctions; Games; Incomplete information; Strategy (search for similar items in EconPapers)
JEL-codes: C72 C91 D44 D91 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Are Strategies Anchored? (2019) Downloads
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DOI: 10.1016/j.euroecorev.2021.103725

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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