Are Strategies Anchored?

CRC TRR 190, Discussion Paper 211

33 Pages Posted: 10 Jan 2020

See all articles by Radosveta Ivanova-Stenzel

Radosveta Ivanova-Stenzel

affiliation not provided to SSRN

Gyula Seres

Humboldt University of Berlin; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2019

Abstract

Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in strategic settings. This article studies the role of anchoring bias in private-value auctions. We test experimentally two different anchor types. The announcement of a random group identification number but also of an upper bid limit in the first-price sealed-bid auction result in higher bids. We show that such behavior can be explained as a rational response to biased beliefs. In Dutch auctions, the effect of a starting price, is negative. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the first-price sealed-bid auction crucially depends on the size of the anchor.

Keywords: Anchoring Bias, Games, Incomplete Information, Auctions

JEL Classification: D44, D91, C72, C91

Suggested Citation

Ivanova-Stenzel, Radosveta and Seres, Gyula, Are Strategies Anchored? (December 11, 2019). CRC TRR 190, Discussion Paper 211, Available at SSRN: https://ssrn.com/abstract=2603757 or http://dx.doi.org/10.2139/ssrn.2603757

Radosveta Ivanova-Stenzel

affiliation not provided to SSRN

Gyula Seres (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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