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The impact of language on decision-making: Auction winners are less cursed in a foreign language

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Listed:
  • Fu, Fang
  • Grant, Leigh H.
  • Hortaçsu, Ali
  • Keysar, Boaz
  • Yang, Jidong
  • Ye, Karen J.

Abstract

As foreign language use becomes more commonplace in the globalized market, we ask whether using a foreign language systematically impacts financial decisions. We conducted a lab experiment in Beijing, China, with 357 native Mandarin Chinese speakers who know English as a foreign language. We ran a series of sealed-bid, common value auctions, where winning bidders often pay more than the object is worth and hence suffer from the “winner’s curse.” Here we show that using a foreign language reduces the winner’s curse, as winning bidders were less likely to overbid for the object. When using a native tongue, bidders adopted a naïve strategy, while with a foreign language they got closer to the Nash equilibrium bid. However, as bidders received feedback on others’ bidding behavior across consecutive auctions, bidding across the language treatments converged to the naïve bid. These results suggest that the language through which individuals make bidding decisions can have influential effects on financial decision making in market settings.

Suggested Citation

  • Fu, Fang & Grant, Leigh H. & Hortaçsu, Ali & Keysar, Boaz & Yang, Jidong & Ye, Karen J., 2025. "The impact of language on decision-making: Auction winners are less cursed in a foreign language," Journal of Economic Psychology, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:joepsy:v:110:y:2025:i:c:s0167487025000571
    DOI: 10.1016/j.joep.2025.102845
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    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
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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