Opportunity cost, inattention and the bidder's curse
David Freeman (),
Erik Kimbrough and
J. Philipp Reiss
No 101, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering
Recent research suggests that auction winners sometimes fall prey to a "bidder's curse", paying more for an item at auction than they would have paid at a posted price. One explanation for this phenomenon is that bidders are inattentive to posted prices. We develop a model in which bidders' inattention, and subsequent overbidding, is driven by a rational response to the opportunity cost of acquiring information about the posted price. We test our model in a laboratory experiment in which subjects bid in an auction while facing an opportunity cost of looking up the posted price. We vary the opportunity cost, and we show that information acquisition decreases and consequently overbidding increases with opportunity cost as predicted.
Keywords: Auctions; Bidder's Curse; Limited Attention; Experiments; Rational Ignorance (search for similar items in EconPapers)
JEL-codes: C72 C92 D44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-gth
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Working Paper: Opportunity cost, inattention and the bidder's curse (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:101
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