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Do bidders require a monetary premium for cognitive effort in an auction?

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  • Rosenboim, Mosi
  • Shavit, Tal
  • Cohen, Chen

Abstract

Research on the influence of cognitive effort on decision making has grown in recent years. We argue that when cognitive effort is required, a decision maker requests a monetary premium for his effort. In our experiment, the participants were asked to bid a price for lotteries of differing complexity that required varying amounts of cognitive effort. Furthermore, some participants were given a simple calculator. We show that the increase in cognitive efforts increases the monetary premium they request, and leads to better pricing of similar lotteries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

Volume (Year): 42 (2013)
Issue (Month): C ()
Pages: 99-105

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Handle: RePEc:eee:soceco:v:42:y:2013:i:c:p:99-105

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Web page: http://www.elsevier.com/locate/inca/620175

Related research

Keywords: Cognitive effort; Premium; Lottery; Demand effect;

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  1. Garbarino, Ellen C & Edell, Julie A, 1997. " Cognitive Effort, Affect, and Choice," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 147-58, September.
  2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
  3. Shogren, Jason F. & Cho, Sungwon & Koo, Cannon & List, John & Park, Changwon & Polo, Pablo & Wilhelmi, Robert, 2001. "Auction mechanisms and the measurement of WTP and WTA," Resource and Energy Economics, Elsevier, vol. 23(2), pages 97-109, April.
  4. Mosi Rosenboim & Tal Shavit, 2012. "Whose money is it anyway? Using prepaid incentives in experimental economics to create a natural environment," Experimental Economics, Springer, vol. 15(1), pages 145-157, March.
  5. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  6. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
  7. Curley, Shawn P. & Yates, J. Frank & Abrams, Richard A., 1986. "Psychological sources of ambiguity avoidance," Organizational Behavior and Human Decision Processes, Elsevier, vol. 38(2), pages 230-256, October.
  8. Ran Kivetz, 2003. "The Effects of Effort and Intrinsic Motivation on Risky Choice," Marketing Science, INFORMS, vol. 22(4), pages 477-502, December.
  9. Nicholas Bardsley, 2005. "Experimental economics and the artificiality of alteration," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 239-251.
  10. Binmore, K & Shaked, A & Sutton, J, 1985. "Testing Noncooperative Bargaining Theory: A Preliminary Study," American Economic Review, American Economic Association, vol. 75(5), pages 1178-80, December.
  11. Nicholas Bardsley, 2008. "Dictator game giving: altruism or artefact?," Experimental Economics, Springer, vol. 11(2), pages 122-133, June.
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Cited by:
  1. Trautmann, Stefan T. & Zeckhauser, Richard J., 2013. "Shunning uncertainty: The neglect of learning opportunities," Games and Economic Behavior, Elsevier, vol. 79(C), pages 44-55.

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