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Hypothetical thinking and the winner's curse: An experimental investigation
Johannes Moser, University of Regensburg
A7 — Decision-Making in Organizations
Chair: Aseem Kaul, U. of Minnesota
Room Société canadienne des postes
Abstract
There is evidence that bidders fall prey to the winner's curse because they fail to extract information from hypothetical events - like winning an auction. This paper investigates experimentally whether bidders in a common value auction perform better when the requirements for this cognitive issue - also denoted by contingent reasoning - are relaxed, leaving all other parameters unchanged. The overall pattern of the data suggests that the problem of irrational over- and underbidding can be weakened by giving the subjects ex ante feedback about their bid, but unlike related studies I also find negative effects of additional information.