Going, going, gone: competitive decision-making in Dutch auctions

In a Dutch auction, an item is offered for sale at a set maximum price. The price is then gradually lowered over a fixed interval of time until a bid is made, securing the item for the bidder at the current price. Bidders must trade-off between certainty and price: bid early to secure the item and y...

Full description

Saved in:

Bibliographic Details
Published in:	Cognitive research: principles and implications 2020-11, Vol.5 (1), p.62-62, Article 62
Main Authors:	Bennett, Murray, Mullard, Rachel, Adam, Marc T. P., Steyvers, Mark, Brown, Scott, Eidels, Ami
Format:	Article
Language:	eng
Subjects:	Auctions Behavior Behavioral Science and Psychology Bids Cognitive Psychology Competition Competitive Decision Making Dutch auction Expected utility Experimental Psychology Foreign Countries Group Decision Making Neurosciences Original Original Article Prospect theory Psychology Purchasing
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

Description
Summary:	In a Dutch auction, an item is offered for sale at a set maximum price. The price is then gradually lowered over a fixed interval of time until a bid is made, securing the item for the bidder at the current price. Bidders must trade-off between certainty and price: bid early to secure the item and you pay a premium; bid later at a lower price but risk losing to another bidder. These properties of Dutch auctions provide new opportunities to study competitive decision-making in a group setting. We developed a novel computerised Dutch auction platform and conducted a set of experiments manipulating volatility (fixed vs varied number of items for sale) and price reduction interval rate (step-rate). Triplets of participants ( N = 66 ) competed with hypothetical funds against each other. We report null effects of step-rate and volatility on bidding behaviour. We developed a novel adaptation of prospect theory to account for group bidding behaviour by balancing certainty and subjective expected utility. We show the model is sensitive to variation in auction starting price and can predict the associated changes in group bid prices that were observed in our data.
ISSN:	2365-7464 2365-7464