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

Author

Listed:
  • Ji Yong Lee

    (Department of Agricultural Economics and Agribusiness,, University of Arkansas)

  • Rodolfo M. Nayga, Jr

    (The National Bureau of Economic Research)

  • Cary Deck

    (Department of Economics, Finance, and Legal Studies, University of Alabama)

  • Andreas Drichoutis

    (Department of Agricultural Economics & Rural Development, Agricultural University of Athens)

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.

Suggested Citation

  • Ji Yong Lee & Rodolfo M. Nayga, Jr & Cary Deck & Andreas Drichoutis, 2017. "Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study," Working Papers 2017-3, Agricultural University of Athens, Department Of Agricultural Economics.
    • Handle: RePEc:aua:wpaper:2017-3
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    References listed on IDEAS

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    Cited by:

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    2. Brice Corgnet & Cary Deck & Mark DeSantis & David Porter, 2022. "Forecasting Skills in Experimental Markets: Illusion or Reality?," Management Science, INFORMS, vol. 68(7), pages 5216-5232, July.
    3. Thomas Giebe & Radosveta Ivanova-Stenzel & Martin G. Kocher & Simeon Schudy, 2024. "Cross-game learning and cognitive ability in auctions," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 80-108, March.
    4. Rosato, Antonio & Tymula, Agnieszka A., 2024. "A novel experimental test of truthful bidding in second-price auctions with real objects," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 111(C).
    5. Daniele Asioli & Adriana Mignani & Frode Alfnes, 2021. "Quick and easy? Respondent evaluations of the Becker–DeGroot–Marschak and multiple price list valuation mechanisms," Agribusiness, John Wiley & Sons, Ltd., vol. 37(2), pages 215-234, April.
    6. Maurizio Canavari & Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga, Jr., 2018. "How to run an experimental auction: A review of recent advances," Working Papers 2018-5, Agricultural University of Athens, Department Of Agricultural Economics.
    7. Drichoutis, Andreas C. & Nayga, Rodolfo M., 2022. "Game form recognition in preference elicitation, cognitive abilities, and cognitive load," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 49-65.
    8. Shraman Banerjee & Swagata Bhattacharjee, 2023. "Virtue of Simplicity in Asymmetric Auctions," Working Papers 2023-01, Shiv Nadar University, Department of Economics.

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    More about this item

    Keywords

    Cognitive ability; Second price auction; Bid deviation; Overbidding; Laboratory experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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