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Are strategies anchored?

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  • Ivanova-Stenzel, Radosveta
  • Seres, Gyula

Abstract

Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in economic strategic interactions. Using experimental auctions, we show that bidding strategies are anchored by irrelevant numbers. The announcement of a random group identification number has a positive effect on bids. We also find a strong effect of a maximal permissible bid, despite being irrelevant for a rational player: In first-price sealed-bid auctions, a higher upper bid limit increases bids, whereas, in Dutch auctions, the effect of the starting price is negative and consistent with a model that takes into account the value of time in auctions. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the sealed-bid auction crucially depends on the size of the maximal permissible bid.

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  • Ivanova-Stenzel, Radosveta & Seres, Gyula, 2021. "Are strategies anchored?," European Economic Review, Elsevier, vol. 135(C).
    • Handle: RePEc:eee:eecrev:v:135:y:2021:i:c:s0014292121000787
    DOI: 10.1016/j.euroecorev.2021.103725
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    Cited by:

    1. Ivanova-Stenzel, Radosveta & Seres, Gyula, 2022. "Anchored strategic reasoning," Economics Letters, Elsevier, vol. 212(C).
    2. Rafiq Friperson & Hessel Oosterbeek & Bas van der Klaauw, 2023. "Competition modulates buyers’ reaction to sellers’ cheap talk," Tinbergen Institute Discussion Papers 23-035/V, Tinbergen Institute.
    3. Yigit Oezcelik & Michel Tolksdorf, 2023. "Non-numerical and social anchoring in consumer-generated ratings," Working Papers 202319, University of Liverpool, Department of Economics.
    4. Haruvy, Ernan & Heinrich, Timo & Walker, Matthew J., 2022. "Separating probability weighting and risk aversion in first-price auctions," Economics Letters, Elsevier, vol. 221(C).

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    More about this item

    Keywords

    Anchoring bias; Auctions; Games; Incomplete information; Strategy;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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