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Do bidders require a monetary premium for cognitive effort in an auction?

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  • Rosenboim, Mosi
  • Shavit, Tal
  • Cohen, Chen

Abstract

Research on the influence of cognitive effort on decision making has grown in recent years. We argue that when cognitive effort is required, a decision maker requests a monetary premium for his effort. In our experiment, the participants were asked to bid a price for lotteries of differing complexity that required varying amounts of cognitive effort. Furthermore, some participants were given a simple calculator. We show that the increase in cognitive efforts increases the monetary premium they request, and leads to better pricing of similar lotteries.

Suggested Citation

  • Rosenboim, Mosi & Shavit, Tal & Cohen, Chen, 2013. "Do bidders require a monetary premium for cognitive effort in an auction?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 42(C), pages 99-105.
  • Handle: RePEc:eee:soceco:v:42:y:2013:i:c:p:99-105
    DOI: 10.1016/j.socec.2012.11.017
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    References listed on IDEAS

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    1. Binmore, K & Shaked, A & Sutton, J, 1985. "Testing Noncooperative Bargaining Theory: A Preliminary Study," American Economic Review, American Economic Association, vol. 75(5), pages 1178-1180, December.
    2. Garbarino, Ellen C & Edell, Julie A, 1997. " Cognitive Effort, Affect, and Choice," Journal of Consumer Research, Oxford University Press, vol. 24(2), pages 147-158, September.
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    5. Shogren, Jason F. & Cho, Sungwon & Koo, Cannon & List, John & Park, Changwon & Polo, Pablo & Wilhelmi, Robert, 2001. "Auction mechanisms and the measurement of WTP and WTA," Resource and Energy Economics, Elsevier, vol. 23(2), pages 97-109, April.
    6. Mosi Rosenboim & Tal Shavit, 2012. "Whose money is it anyway? Using prepaid incentives in experimental economics to create a natural environment," Experimental Economics, Springer;Economic Science Association, vol. 15(1), pages 145-157, March.
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    Cited by:

    1. Trautmann, Stefan T. & Zeckhauser, Richard J., 2013. "Shunning uncertainty: The neglect of learning opportunities," Games and Economic Behavior, Elsevier, vol. 79(C), pages 44-55.

    More about this item

    Keywords

    Cognitive effort; Premium; Lottery; Demand effect;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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