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Bidding behavior and decision costs in field experiments

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  • John List
  • David Lucking-Reiley

Abstract

Whether rationality of economic behavior increases with expected payoffs and decreases with the cognitive cost it takes to formulate an optimal strategy remains an open question. We explore these issues with field data, using individual bids from sealed-bid auctions in which we sold nearly $10,000 worth of sportscards. Our results indicate that stakes do indeed matter, as high-priced ($70) cards produced more of the theoretically predicted strategic behavior than did lower-priced ($3) cards. We find additional evidence consistent with the importance of cognitive costs, as subjects more experienced with sportscard auctions exhibited a greater tendency to behave strategically than did less experienced bidders.

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Bibliographic Info

Paper provided by The Field Experiments Website in its series Framed Field Experiments with number 00181.

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Date of creation: 2002
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Handle: RePEc:feb:framed:00181

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Web page: http://www.fieldexperiments.com

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  1. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-61, April.
  2. Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, vol. 66(3), pages 569-596, May.
  3. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  4. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  5. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer, vol. 5(2), pages 337-51, March.
  6. List, John A & Shogren, Jason F, 1998. "The Deadweight Loss of Christmas: Comment," American Economic Review, American Economic Association, vol. 88(5), pages 1350-55, December.
  7. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  8. John List & David Lucking-Reiley, 2000. "Demand reduction in a multi-unit auction: Evidence from a sportscard field experiment," Framed Field Experiments 00180, The Field Experiments Website.
  9. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer, vol. 12(2), pages 227-258.
  10. John A. List, 2001. "Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards," American Economic Review, American Economic Association, vol. 91(5), pages 1498-1507, December.
  11. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
  12. David Lucking-Reiley & John A. List, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September.
  13. Tenorio, Rafael, 1997. "On Strategic Quantity Bidding in Multiple Unit Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 207-17, June.
  14. repec:feb:framed:0052 is not listed on IDEAS
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Cited by:
  1. Rolfe, John & Windle, Jill, 2011. "Using auction mechanisms to reveal costs for water quality improvements in Great Barrier Reef catchments in Australia," Agricultural Water Management, Elsevier, vol. 98(4), pages 493-501, February.
  2. David Porter & Roumen Vragov, 2006. "An experimental examination of demand reduction in multi-unit versions of the Uniform-price, Vickrey, and English auctions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(6), pages 445-458.
  3. Kelly Shue & Erzo F. P. Luttmer, 2006. "Who Misvotes? The Effect of Differential Cognition Costs on Election Outcomes," NBER Working Papers 12709, National Bureau of Economic Research, Inc.
  4. Brown, Jennifer & Morgan, John, 2006. "How much is a Dollar Worth? Tipping versus Equilibrium Coexistence on Competing Online Auction Sites," Competition Policy Center, Working Paper Series qt3c21w91h, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  5. Xin Wang & Alan Montgomery & Kannan Srinivasan, 2008. "When auction meets fixed price: a theoretical and empirical examination of buy-it-now auctions," Quantitative Marketing and Economics, Springer, vol. 6(4), pages 339-370, December.
  6. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  7. Daniel McFadden, 2009. "The human side of mechanism design: a tribute to Leo Hurwicz and Jean-Jacque Laffont," Review of Economic Design, Springer, vol. 13(1), pages 77-100, April.
  8. Bresky, Michal, 2013. "Revenue and efficiency in multi-unit uniform-price auctions," Games and Economic Behavior, Elsevier, vol. 82(C), pages 205-217.
  9. Rolfe, John & Windle, Jill, 2006. "Using Field Experiments to Explore the Use of Multiple Bidding Rounds in Conservation Auctions," Discussion Papers 25801, International Association of Agricultural Economists.
  10. Anna Bassi & Kenneth C. Williams, 2014. "Examining Monotonicity and Saliency Using Level- k Reasoning in a Voting Game," Games, MDPI, Open Access Journal, vol. 5(1), pages 26-52, February.

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