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The Dollar Auction Game: A laboratory comparison between Individuals and Groups

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  • Morone, Andrea
  • Nuzzo, Simone
  • Caferra, Rocco

Abstract

By means of a laboratory experiment, this paper aims at studying how individuals and groups behave in a simple game such as the dollar auction. This game is extremely interesting since it induces subjects to fall prey into the paradigm of escalation, which is driven by agents’ commitment to higher and higher bids. Indeed, whenever each participant commits himself to a bid, the lower bidder, moved by the wish to win as well as to defend his prior investment, finds it in his best interest to place a higher bid to overcome his opponent. The latter mechanism may lead subjects to overbid, implying that the winner pays more than the auctioned value. The aim of the paper is to analyze bidder’s behavior, comparing individuals vs. groups’ decisions within the dollar auction framework. We find that groups are closer than individuals to the Nash equilibrium, and that experience reduces the escalation phenomenon, but it has a different impact on winners and losers.

Suggested Citation

  • Morone, Andrea & Nuzzo, Simone & Caferra, Rocco, 2016. "The Dollar Auction Game: A laboratory comparison between Individuals and Groups," MPRA Paper 72608, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72608
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    Cited by:

    1. Steiger, Sören & Pelster, Matthias, 2020. "Social interactions and asset pricing bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 503-522.
    2. Rocco Caferra & Andrea Morone & Piergiuseppe Morone & Paolo Storelli, 2022. "Professional traders’ individual and social preferences under risk: Does group's wealth matter?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 1063-1082, December.
    3. Morone, Andrea & Temerario, Tiziana, 2016. "Are dyads conditionally cooperative? Evidence from a public goods experiment," EconStor Preprints 148356, ZBW - Leibniz Information Centre for Economics.
    4. Ayala Arad & Kevin P. Grubiak & Stefan P. Penczynski, 2024. "Does communicating within a team influence individuals’ reasoning and decisions?," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 109-129, March.
    5. Morone, Andrea & Temerario, Tiziana, 2018. "Is dyads’ behaviour conditionally cooperative? Evidence from a public goods experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 73(C), pages 76-85.

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    More about this item

    Keywords

    escalation; winner’s curse;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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