Cognitive ability and bidding behavior in second price auctions: An experimental study

Abstract

This paper examines what connection, if any, there is between cognitive ability and bidding strategy in second price auctions. Despite truthful revelations being a weakly dominant strategy, previous experiments have consistently observed overbidding, which makes the use of such auctions for inferring homegrown values problematic. Examining the effect of cognitive ability is important, as it may help identify when one can reliably recover values from observed 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. Our results suggest that considering subjects' cognitive ability in homegrown valuation studies can help identify the true underlying demand conditions.

Publication
American Journal of Agricultural Economics
Andreas C. Drichoutis
Andreas C. Drichoutis
Associate Professor of Consumer Behavior

My research interests are focused on, but not limited to, the economics of nutrition/obesity, contingent valuation and experimental auctions methods to elicit consumers’ valuations, choice under risk, inter-temporal decision making and applied demand analysis. Most of my research applies experimental economics methods to answer questions relevant for agricultural economists and decision scientists.