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Decision Making, Affect, and LearningAttention and Performance XXIII$
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Mauricio R. Delgado, Elizabeth A. Phelps, and Trevor W. Robbins

Print publication date: 2011

Print ISBN-13: 9780199600434

Published to Oxford Scholarship Online: May 2011

DOI: 10.1093/acprof:oso/9780199600434.001.0001

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The psychology of common value auctions

The psychology of common value auctions

Chapter:
(p.63) Chapter 3 The psychology of common value auctions
Source:
Decision Making, Affect, and Learning
Author(s):

Samuel M. McClure

Wouter van den Bos

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199600434.003.0003

One of the most interesting but unresolved phenomena in auction behaviour is the winner's curse — the strong tendency of participants to bid more than rational agent theory prescribes, often at a significant loss. To address this, an approach is proposed that uses neuroscience as a means to determine the nature of the mechanisms at play as people learn to bid. The chapter is organized as follows. Section 3.1 introduces. Section 3.2 defines the winner's curse formally and outlines the (optimal) Nash equilibrium bidding strategy. Section 3.3 includes experiments demonstrating that social context is a critical factor underlying the winner's curse, above and beyond the influence of other explanations, such as risk aversion. Section 3.4 begins building a complete model of bidding behaviour by accounting for learning in the task with a reinforcement learning model. The validity of this learning model is established with functional brain imaging described in Section 3.5 while Section 3.6 concludes.

Keywords:   auction behaviour, winner's curse, neuroscience, bidding behaviour, learning model, brain imaging

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