title: Competition strength influences individual preferences in an auction game.
abstract: Competitive interactions between individuals are ubiquitous in human societies. Auctions represent an institutionalized context for these interactions, a context where individuals frequently make non-optimal decisions. In particular, competition in auctions can lead to overbidding, resulting in the so-called winner's curse, often explained by invoking emotional arousal. In this study, we investigated an alternative possibility, namely that competitors' bids are construed as a source of information about the good's common value thereby influencing an individuals' private value estimate. We tested this hypothesis by asking participants to bid in a repeated all-pay auction game for five different real items. Crucially, participants had to rank the auction items for their preference before and after the experiment. We observed a clear relation between auction dynamics and preference change. We found that low competition reduced preference while high competition increased preference. Our findings support a view that competitors' bids in auction games are perceived as valid social signal for the common value of an item. We suggest that this influence of social information constitutes a major cause for the frequently observed deviations from optimality in auctions.
authors.affiliation: Berlin School of Mind and Brain, Humboldt University, Luisenstrasse 56, 10117 Berlin, Germany.
authors.forename: Ulf
authors.initials: U
authors.lastname: Toelch
authors.affiliation: Berlin School of Mind and Brain, Humboldt University, Luisenstrasse 56, 10117 Berlin, Germany.
authors.forename: Esperanza
authors.initials: E
authors.lastname: Jubera-Garcia
authors.affiliation: Wellcome Trust Centre for Neuroimaging, University College London, London WC1N 3BG, UK; Max Planck-UCL Centre for Computational Psychiatry and Ageing, Lentzeallee 94, 14195 Berlin, Germany.
authors.forename: Zeb
authors.initials: Z
authors.lastname: Kurth-Nelson
authors.affiliation: Wellcome Trust Centre for Neuroimaging, University College London, London WC1N 3BG, UK.
authors.forename: Raymond J
authors.initials: RJ
authors.lastname: Dolan
mesh_terms: D000328:Adult; D003163:Competitive Behavior / Q000502:physiology*; D005260:Female; D005717:Games, Experimental; D006801:Humans; D007206:Individuality; D007398:Interpersonal Relations; D008297:Male
keywords: All pay auction; Competition; Decision-making; Preference formation; Social information