Discussion Paper No. 382
February 14, 2023
Risk, Reward and Uncertainty in Buyer-Seller Transactions - The Seller's View on Combining Posted Prices and Auctions -
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Abstract:
In Buy-It-Now auctions, sellers can post a take-it-or-leave-it price offer prior to an auction. While the literature almost exclusively looks at buyers in such combined mechanisms, the current paper summarizes results from the sellers' point of view. Buy-It-Now auctions are complex mechanisms and therefore quite challenging for sellers. The paper discusses the seller's curse, a bias that sellers might fall prey to in such combined mechanisms, and how experience counterbalances this bias. Furthermore, the paper explores the role of information and bargaining power on behavior and profit prospects in Buy-It-Now auctions.
Keywords:
asymmetric information; laboratory experiment; field experiment; auction; BIN-auction; Buy-It-Now auction; BIN-price; Buy-It-Now price; combined mechanism;
JEL-Classification:
C72; C91; D44; D82; L1;
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Discussion Paper No. 359
January 4, 2023
Time Pressure and Regret in Sequential Search
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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-Classification:
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Discussion Paper No. 358
Cross-game Learning and Cognitive Ability in Auctions
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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-Classification:
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Discussion Paper No. 350
Lying to Individuals versus Lying to Groups
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We investigate experimentally whether individuals or groups are more lied to, and how lying depends on the group size and the monetary loss inflicted by the lie. We employ an observed cheating game, where an individual's misreport of a privately observed number can monetarily benefit her while causing a loss to either a single individual, a group of two or a group of five. As the privately observed number is known to the experimenter, the game allows to study both, whether the report deviates from the observed number and also by how much. Treatments either vary the individual loss caused by a given lie (keeping the total loss constant), or the total loss (keeping the individual loss constant). We find more lies toward individuals than toward groups. Liars impose a larger loss with their lie when that loss is split among group members rather than borne individually. The size of the group does not affect lying behavior.
Keywords:
cheating; lying; groups; observed cheating game; laboratory experiment;
JEL-Classification:
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Discussion Paper No. 330
December 1, 2022
Ignorance, Intention and Stochastic Outcomes
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In sequential interactions, both the agent’s intention and the outcome of his choice may influence the principal’s action. While outcomes are typically observable, intentions are more likely to be hidden, leaving potential wiggle room for the principal when deciding on a reciprocating action. We employ a controlled experiment to investigate how intentions and outcome affect the principal’s actions and whether principals use hidden information as an excuse to behave more selfishly. We find that principals react mainly to the intention of the agent. When intentions are not revealed by default, principals tend to select into information based on their inclination to behave more prosocially. While information avoidance is frequent and selfishness is higher with hidden information, we do not find evidence of a strategic exploitation of moral wiggle room.
Keywords:
information avoidance; dictator game; moral wiggle room; intentions; reciprocity;
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Discussion Paper No. 314
January 25, 2022
Anchored Strategic Reasoning
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Anchoring is a robust behavioral phenomenon modeled predominantly as a bias in individual judgment. We propose a game-theoretic model that considers players’ beliefs about others’ behavior as a mediator for the effect of the anchor on a player’s choice. The results establish that anchoring in strategic interactions reported in the literature can be rationalized by anchored beliefs about the opponents’ intentions. Notwithstanding, we also demonstrate that a player might adjust away from rather than toward the anchor in games where choices are strategic substitutes.
Keywords:
anchoring bias; auctions; games; incomplete information; strategy;
JEL-Classification:
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Discussion Paper No. 310
January 14, 2022
Experimenting with Purchase History Based Price Discrimination: a Comment
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Brokesova, Deck and Peliova [Int. J. Ind. Organ. 37 (2014) 229-237] have shown that comparative static results from two-period behavior-based pricing models hold in laboratory experiments, but they observed significant differences from point predictions. We report findings in conformity with these point predictions throughout a uniform pricing benchmark, a replication of Brokesova, Deck and Peliova’s behavior-based pricing treatment and a follow-up experiment. Reference dependence seems to shift participants’ second-period pricing behavior upwards. A post hoc analysis shows that considering myopic consumers instead of strategic consumers explains a downward shift of first-period prices and rationalizes the findings of Brokesova, Deck and Peliova. Volatile price levels affect price-based welfare measures such as sellers’ profits and customers’ total costs. We show that transport costs serve as a robust welfare measure, alleviating the impact of distorted prices. These findings are relevant for the design of experiments and when assessing the efficiency of experimental markets.
Keywords:
behavior-based price discrimination; pricing experiment;
JEL-Classification:
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Discussion Paper No. 300
November 16, 2021
Face Mask Use and Physical Distancing Before and After Mandatory Masking: No Evidence on Risk Compensation in Public Waiting Lines
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During the COVID-19 pandemic, the introduction of mandatory face mask usage triggered a heated debate. A major point of controversy is whether community use of masks creates a false sense of security that would diminish physical distancing, counteracting any potential direct benefit from masking. We conducted a randomized field experiment in Berlin, Germany, to investigate how masks affect distancing and whether the mask effect interacts with the introduction of an indoor mask mandate. Joining waiting lines in front of stores, we measured distances kept from the experimenter in two treatment conditions – the experimenter wore a mask in one and no face covering in the other – in two time spans – before and after mask use becoming mandatory in stores. We find no evidence that mandatory masking has a negative effect on distance kept toward a masked person. To the contrary, masks significantly increase distancing and the effect does not differ between the two periods. However, we show that after the mandate distances are shorter in locations where more non-essential stores, which were closed before the mandate, had reopened. We argue that the relaxations in general restrictions that coincided with the mask mandate led individuals to reduce other precautions, like keeping a safe distance.
Keywords:
COVID-19; face masks; social distancing; risk compensation; field experiment; health policy;
JEL-Classification:
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Discussion Paper No. 289
November 10, 2021
Report-Dependent Utility and Strategy-Proofness
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Despite the truthful dominant strategy, participants in strategy-proof me- chanisms submit manipulated preferences. In our model, participants dislike rejections and enjoy the confirmation from getting what they declared most desirable. Formally, the payo↵ from a match decreases in its position in the submitted ranking such that a strategic trade-o↵ between preference inten- sity and match probability arises. This trade-o↵ can trigger the commonly observed self-selection strategies. We show that misrepresentations can per- sist for arbitrarily small report-dependent components. However, honesty is guaranteed to be optimal if and only if there is no conflict between the quality and feasibility of a match.
Keywords:
market design; matching; school choice; self-regarding preferences; strategy-proof mechanism;
JEL-Classification:
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Discussion Paper No. 279
Teams and Individuals in Standard Auction Formats: Decision and Emotions
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Our study compares individual and team bidding in standard auction formats: first-price, second-price and ascending-price (English) auctions with independent private values. In a laboratory experiment, we find that individuals overbid more than teams in first-price auctions and deviate more from bidding their own value in second-price auctions. However we observe no difference in bidding behavior in English auctions. Based on control variables, we claim that the observed difference can be explained by better reasoning abilities of teams. Emotions play a role in determining bids, but the effect of emotions on bidding does not differ between individuals and teams.
Keywords:
auctions; team decision-making; experiment; overbidding;
JEL-Classification: