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Opportunity cost, inattention and the bidder's curse

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  • David Freeman

    (Simon Fraser University)

  • Erik O. Kimbrough

    (Simon Fraser University)

  • J. Philipp Reiss

    (Karlsruhe Institution of Technology)

Abstract

Recent research suggests that auction winners sometimes fall prey to a “bidder's curse", paying more for an item at auction than they would have paid at a posted price. One explanation for this phenomenon is that bidders are inattentive to posted prices. We develop a model in which bidders' inattention, and subsequent overbidding, is driven by a rational response to the opportunity cost of acquiring information about the posted price. We test our model in a laboratory experiment in which subjects bid in an auction while facing an opportunity cost of looking up the posted price. We vary the opportunity cost, and we show that information acquisition decreases and consequently overbidding increases with opportunity cost as predicted

Suggested Citation

  • David Freeman & Erik O. Kimbrough & J. Philipp Reiss, 2017. "Opportunity cost, inattention and the bidder's curse," Discussion Papers dp17-04, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp17-04
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    Cited by:

    1. Fabian Ocker, 2018. "“Bid more, pay less” – overbidding and the Bidder’s curse in teleshopping auctions," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(4), pages 491-508, November.

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    More about this item

    Keywords

    Auctions; Bidder's Curse; Limited Attention; Experiments; Rational Ignorance;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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