Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study
Ji Yong Lee,
Cary Deck and
Andreas Drichoutis ()
MPRA Paper from University Library of Munich, Germany
Behavioral biases are more pronounced for individuals with lower cognitive abilities. This paper examines what connection if any there is between cognitive ability and bidding strategy in second price auctions. Despite truthful revelation being a weakly dominant strategy, previous experiments have consistently observed overbidding, which makes use of such auctions for inferring homegrown value problematic. Examining the effect of cognitive ability is important as it may help identify when one can reliably recover values from bids. The results indicate that more cognitively able subjects behave in closer accordance with theory, and that cognitive ability partially explains heterogeneity in bidding behavior.
Keywords: Cognitive ability; Second price auction; Bid deviation; Overbidding; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 C92 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-des, nep-exp, nep-neu and nep-upt
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Working Paper: Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81495
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