Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155326
Authors: 
Freeman, David
Kimbrough, Erik O.
Reiss, J. Philipp
Year of Publication: 
2017
Series/Report no.: 
Working Paper Series in Economics, Karlsruher Institut für Technologie (KIT) 101
Abstract: 
Recent research suggests that auction winners sometimes fall prey to a "bidder's curse", paying more for an item at auction than they would have paid at a posted price. One explanation for this phenomenon is that bidders are inattentive to posted prices. We develop a model in which bidders' inattention, and subsequent overbidding, is driven by a rational response to the opportunity cost of acquiring information about the posted price. We test our model in a laboratory experiment in which subjects bid in an auction while facing an opportunity cost of looking up the posted price. We vary the opportunity cost, and we show that information acquisition decreases and consequently overbidding increases with opportunity cost as predicted.
Subjects: 
Auctions
Bidder's Curse
Limited Attention
Experiments
Rational Ignorance
JEL: 
C72
C92
D44
Document Type: 
Working Paper

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