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on Neuroeconomics |
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Issue of 2023‒01‒23
two papers chosen by |
| By: | Giebe, Thomas (Linnaeus University); Ivanova-Stenzel, Radosveta (TU Berlin); Kocher, Martin G. (University of Vienna, CESifo and University of Gothenburg); Schudy, Simeon (LMU Munich and CESifo) |
| Abstract: | Overbidding in sealed-bid second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not substantially affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, 'cross-game learning' may rather be understood as 'cross-game transfer', as it has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher-ability bidders. |
| Keywords: | cognitive ability; cross-game learning; cross-game transfer; experiment; auction; heuristics; first-price auctions; second-price auctions; |
| JEL: | C72 C91 D44 D83 |
| Date: | 2022–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:358&r=neu |
| By: | Klimm, Felix (LMU Munich and CESifo); Kocher, Martin G. (University of Vienna, CESifo and University of Gothenburg); Opitz, Timm (MPI and LMU Munich); Schudy, Simeon (LMU Munich and CESifo) |
| Abstract: | Perceived urgency and regret are common in many sequential search processes; for example, sellers often pressure buyers in search of the best offer, both time-wise and in terms of potential regret of forgoing unique purchasing opportunities. theoretically, these strategies result in anticipated and experienced regret, which systematically affect search behavior and thereby distort optimal search. In addition, urgency may alter decision-making processes and thereby the salience of regret. To understand the empirical relevance of these aspects, we study the causal effects of regret, urgency, and their interaction on search behavior in a pre-registered, theory-based, and well-powered experiment. Empirically, we and that anticipated regret does not affect search behavior either with or without time pressure, while experienced regret leads to systematic adjustments in search length. Urgency reduces decision times and perceived decision quality, but does not generally alter search length. Only very inexperienced decision-makers buy earlier when pressured. Thus, consumer protection measures against pressure selling tactics can help inexperienced consumers in particular. |
| Keywords: | sequential search; time pressure; regret; anticipated regret; experienced regret; |
| JEL: | C91 D01 D03 D18 D83 |
| Date: | 2022–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:359&r=neu |