On Individual Cursedness - How personality shapes individuals' sensitivity to incur a winner's curse -
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.
|Date of creation:||28 Jun 2011|
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