Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study

Ji Yong Lee, Rodolfo Nayga (), Cary Deck and Andreas Drichoutis

MPRA Paper from University Library of Munich, Germany

Abstract: Behavioral biases are more pronounced for individuals with lower cognitive abilities. This paper examines what connection if any there is between cognitive ability and bidding strategy in second price auctions. Despite truthful revelation being a weakly dominant strategy, previous experiments have consistently observed overbidding, which makes use of such auctions for inferring homegrown value problematic. Examining the effect of cognitive ability is important as it may help identify when one can reliably recover values from bids. The results indicate that more cognitively able subjects behave in closer accordance with theory, and that cognitive ability partially explains heterogeneity in bidding behavior.

Keywords: Cognitive ability; Second price auction; Bid deviation; Overbidding; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 C92 (search for similar items in EconPapers)
Date: 2017-09-19
New Economics Papers: this item is included in nep-cbe, nep-des, nep-exp, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://mpra.ub.uni-muenchen.de/81495/1/MPRA_paper_81495.pdf original version (application/pdf)

Related works:
Journal Article: Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study (2020)
Working Paper: Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81495

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