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Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study

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  • Ji Yong Lee
  • Rodolfo M. Nayga
  • Cary Deck
  • Andreas C. Drichoutis

Abstract

This paper examines what connection, if any, there is between cognitive ability and bidding strategy in second price auctions. Despite truthful revelations being a weakly dominant strategy, previous experiments have consistently observed overbidding, which makes the use of such auctions for inferring homegrown values problematic. Examining the effect of cognitive ability is important, as it may help identify when one can reliably recover values from observed 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. Our results suggest that considering subjects' cognitive ability in homegrown valuation studies can help identify the true underlying demand conditions.

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  • Ji Yong Lee & Rodolfo M. Nayga & Cary Deck & Andreas C. Drichoutis, 2020. "Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1494-1510, October.
    • Handle: RePEc:wly:ajagec:v:102:y:2020:i:5:p:1494-1510
    DOI: 10.1002/ajae.12082
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    Cited by:

    1. Brice Corgnet & Cary Deck & Mark DeSantis & David Porter, 2022. "Forecasting Skills in Experimental Markets: Illusion or Reality?," Management Science, INFORMS, vol. 68(7), pages 5216-5232, July.
    2. Thomas Giebe & Radosveta Ivanova-Stenzel & Martin G. Kocher & Simeon Schudy, 2024. "Cross-game learning and cognitive ability in auctions," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 80-108, March.
    3. Drichoutis, Andreas C. & Nayga, Rodolfo M., 2022. "Game form recognition in preference elicitation, cognitive abilities, and cognitive load," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 49-65.
    4. Shraman Banerjee & Swagata Bhattacharjee, 2023. "Virtue of Simplicity in Asymmetric Auctions," Working Papers 2023-01, Shiv Nadar University, Department of Economics.
    5. Yu Jiang & H. Holly Wang & Shaosheng Jin, 2023. "Mobilising the public to fight poverty using anti‐poverty labels in online food markets: Evidence from a real experimental auction," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(1), pages 168-190, February.
    6. Maurizio Canavari & Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga, Jr., 2018. "How to run an experimental auction: A review of recent advances," Working Papers 2018-5, Agricultural University of Athens, Department Of Agricultural Economics.
    7. Rosato, Antonio & Tymula, Agnieszka, 2022. "A novel experimental test of truthful bidding in second-price auctions with real objects," MPRA Paper 115427, University Library of Munich, Germany.
    8. Daniele Asioli & Adriana Mignani & Frode Alfnes, 2021. "Quick and easy? Respondent evaluations of the Becker–DeGroot–Marschak and multiple price list valuation mechanisms," Agribusiness, John Wiley & Sons, Ltd., vol. 37(2), pages 215-234, April.

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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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