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Going, going, gone: competitive decision-making in Dutch auctions.
Murray Bennett1, Rachel Mullard2, Marc T P Adam3
1School of Psychology, The University of Newcastle, Callaghan, NSW, 2308, Australia. murray.bennett@uon.edu.au.
Cognitive Research: Principles and Implications
|November 30, 2020
Summary
This study explored competitive decision-making in Dutch auctions. Researchers found that auction parameters like step-rate and volatility did not significantly impact bidding behavior, but a new model accurately predicted group bids.
Area of Science:
- Behavioral Economics
- Experimental Economics
- Computational Social Science
Background:
- Dutch auctions present a unique trade-off between bid certainty and price for participants.
- Understanding competitive decision-making in group settings is crucial for economic and psychological research.
- Existing models may not fully capture the complexities of group bidding behavior under uncertainty.
Purpose of the Study:
- To investigate the impact of volatility and price reduction interval rate on bidding behavior in Dutch auctions.
- To develop and validate a novel computational model for predicting group bidding behavior.
- To explore the application of prospect theory in understanding group decision-making during auctions.
Main Methods:
- Development of a novel computerized Dutch auction platform for experimental research.
- Conducting experiments with triplets of participants competing with hypothetical funds.
- Manipulation of auction parameters: volatility (fixed vs. varied items) and price reduction interval rate (step-rate).
- Development of an adapted prospect theory model to account for group bidding dynamics.
Main Results:
- No significant effects of step-rate or volatility on participants' bidding behavior were observed.
- The novel prospect theory model demonstrated sensitivity to auction starting price variations.
- The model successfully predicted observed changes in group bid prices based on starting price.
Conclusions:
- Auction parameters like step-rate and volatility appear to have limited influence on group bidding strategies in this Dutch auction setup.
- An adapted prospect theory model offers a promising framework for understanding and predicting group bidding behavior by balancing certainty and subjective utility.
- The model's ability to predict bid prices based on starting price variations highlights its potential for analyzing competitive decision-making.
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