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On Individual Cursedness - How personality shapes individuals' sensitivity to incur a winner's curse -

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  • Nadine Chlaß

    ()
    (School of Economics and Business Administration FSU Jena)

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    Abstract

    The winner's curse is a well-known deviation from rational self-interest in decision-making under asymmetric information. Yet, most prominent explanations for the curse have experimentally been ruled out so far. In particular, the curse did neither seem to emanate from a lack of experience with a given task (Grosskopf et al. 2007), nor from the complexity of the decision task, nor level-k thinking, nor a disability to infer information from others' actions (Charness and Levin 2009), (Ivanov et al. 2010). This paper elicits individuals' sensitivity to incur a winner's curse in a common-value auction where the explanations above do not apply, tracks down the potential source of the curse, and tests to what extent individuals' cursedness evolves (Fudenberg 2006). It finds that the curse is tightly associated with a relatively stable individual characteristic - individuals' personality traits. Personality traits explain individuals' initial cursedness, and also govern whether individuals unlearn, or instead, acquire the curse. I review biological evidence on how personality influences individuals' handling of information to explain why personality matters here.

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    Bibliographic Info

    Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2011-027.

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    Date of creation: 28 Jun 2011
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    Handle: RePEc:jrp:jrpwrp:2011-027

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    Keywords: asymmetric information; winner's curse; personality traits;

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    1. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
    2. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
    3. Brit Grosskopf & Yoella Bereby-Meyer & Max Bazerman, 2007. "On the Robustness of the Winner’s Curse Phenomenon," Theory and Decision, Springer, Springer, vol. 63(4), pages 389-418, December.
    4. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
    5. Miettinen, Topi, 2009. "The partially cursed and the analogy-based expectation equilibrium," Economics Letters, Elsevier, Elsevier, vol. 105(2), pages 162-164, November.
    6. Drew Fudenberg, 2006. "Advancing Beyond Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 694-711, September.
    7. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
    8. Asen Ivanov & Dan Levin & Muriel Niederle, 2010. "Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study," Econometrica, Econometric Society, Econometric Society, vol. 78(4), pages 1435-1452, 07.
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