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Are Strategies Anchored?

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  • Ivanova-Stenzel, Radosveta

    (TU Berlin)

  • Seres, Gyula

    (HU Berlin)

Abstract

Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in strategic settings. This article studies the role of anchoring bias in private-value auctions. We test experimentally two different anchor types. The announcement of a random group identification number but also of an upper bid limit in the first-price sealed-bid auction result in higher bids. We show that such behavior can be explained as a rational response to biased beliefs. In Dutch auctions, the effect of a starting price, is negative. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the first-price sealed-bid auction crucially depends on the size of the anchor.

Suggested Citation

  • Ivanova-Stenzel, Radosveta & Seres, Gyula, 2019. "Are Strategies Anchored?," Rationality and Competition Discussion Paper Series 211, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:211
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    Cited by:

    1. Ivanova-Stenzel, Radosveta & Seres, Gyula, 2022. "Anchored strategic reasoning," Economics Letters, Elsevier, vol. 212(C).
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    3. Haruvy, Ernan & Heinrich, Timo & Walker, Matthew J., 2022. "Separating probability weighting and risk aversion in first-price auctions," Economics Letters, Elsevier, vol. 221(C).
    4. Yigit Oezcelik & Michel Tolksdorf, 2023. "Non-numerical and social anchoring in consumer-generated ratings," Working Papers 202319, University of Liverpool, Department of Economics.

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    More about this item

    Keywords

    anchoring bias; games; incomplete information; auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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