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Opportunity cost, inattention and the bidder’s curse

Freeman, David; Kimbrough, Erik O.; Reiss, J. Philipp

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.

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Volltext §
DOI: 10.5445/IR/1000068511
Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht
Jahr 2017
Sprache Englisch
Identifikator ISSN: 2190-9806
KITopen-ID: 1000068511
Verlag KIT, Karlsruhe
Umfang 45 S.
Serie Working paper series in economics ; 101
Schlagworte Auctions, Bidder's Curse, Limited Attention, Experiments, Rational Ignorance
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