Failures of Contingent Thinking and the Winner’s Curse

Philippos Louis

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: I design a within-subject experiment to investigate why individuals fall victim to the winner’s curse. A known explanation is a failure of contingent thinking (FCT). My design disentangles the effects of pure FCT from cursedness—the failure to recognize the correlation between others’ information and actions. Results show that many participants exhibit FCT without being cursed, while a similar fraction display cursed reasoning. Only a minority avoid both errors. By estimating structural models of cognitive reasoning, including one of pure FCT, I provide further support for these findings, clarifying distinct cognitive mechanisms underlying suboptimal behavior.

Keywords: winner’s curse; contingent thinking; correlation neglect; cursedness; lab experiment; within-subject design. (search for similar items in EconPapers)
JEL-codes: C91 D91 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2025-10-25
New Economics Papers: this item is included in nep-exp and nep-neu
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Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:03-2025

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