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The Dollar Auction Game: A Laboratory Comparison Between Individuals and Groups

Author

Listed:
  • Andrea Morone

    (Università degli Studi di Bari “Aldo Moro”)

  • Simone Nuzzo

    (Università degli Studi di Bari “Aldo Moro”)

  • Rocco Caferra

    (Università degli Studi di Bari “Aldo Moro”)

Abstract

The aim of this paper is to analyze bidders’ behavior, comparing individuals and groups’ decisions within the dollar auction framework. This game induces subjects to fall prey into the paradigm of escalation, which is driven by agents’ commitment to higher and higher bids. Whenever each participant commits himself to a bid, the lower bidder, motivated by the wish to win as well as to defend his prior investment, finds it in his best interest to place a higher bid to overcome his opponent. The latter mechanism may lead subjects to overbid. We find that the Nash equilibrium of the game is only rarely attained. Second, we detect clean evidence that groups’ decisions are, on average, superior to individuals’ decisions. Learning over time is clearly evident, leading individuals to perform nearly as good as groups in the final rounds of the game.

Suggested Citation

  • Andrea Morone & Simone Nuzzo & Rocco Caferra, 2019. "The Dollar Auction Game: A Laboratory Comparison Between Individuals and Groups," Group Decision and Negotiation, Springer, vol. 28(1), pages 79-98, February.
    • Handle: RePEc:spr:grdene:v:28:y:2019:i:1:d:10.1007_s10726-018-9595-5
    DOI: 10.1007/s10726-018-9595-5
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    Cited by:

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    3. Morone, Andrea & Temerario, Tiziana, 2018. "Is dyads’ behaviour conditionally cooperative? Evidence from a public goods experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 73(C), pages 76-85.
    4. Steiger, Sören & Pelster, Matthias, 2020. "Social interactions and asset pricing bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 503-522.

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    More about this item

    Keywords

    Escalation; Winner’s curse; Dollar auction game;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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