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Failures of Contingent Thinking and the Winner’s Curse

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  • Philippos Louis

Abstract

I design a within-subject experiment to investigate why individuals fall victim to the winner’s curse. A known explanation is a failure of contingent thinking (FCT). My design disentangles the effects of pure FCT from cursedness—the failure to recognize the correlation between others’ information and actions. Results show that many participants exhibit FCT without being cursed, while a similar fraction display cursed reasoning. Only a minority avoid both errors. By estimating structural models of cognitive reasoning, including one of pure FCT, I provide further support for these findings, clarifying distinct cognitive mechanisms underlying suboptimal behavior.

Suggested Citation

  • Philippos Louis, 2025. "Failures of Contingent Thinking and the Winner’s Curse," University of Cyprus Working Papers in Economics 03-2025, University of Cyprus Department of Economics.
    • Handle: RePEc:ucy:cypeua:03-2025
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    References listed on IDEAS

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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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