Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248941 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9396
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Overbidding in 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 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 has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher ability bidders.
Subjects: 
cognitive ability
cross-game learning
experiment
auction
heuristics
first-price auctions
second-price auctions
JEL: 
C72
C91
D44
D83
Document Type: 
Working Paper
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