Cognitive Biases in Government Procurement – An Experimental Study

10(2) Review of Law and Economics (2014) 169-200

33 Pages Posted: 9 Jun 2015

See all articles by Omer Dekel

Omer Dekel

Ramat Gan Center of Law and Business

Amos Schurr

Ben-Gurion University of the Negev

Date Written: August 1, 2014

Abstract

Competitive bidding (CB) is the dominant governmental contracting mechanism by which hundreds of billions of dollars are allocated annually. We claim that when bid evaluators assess the qualitative components of competing bids while being exposed to the bid prices, a systematic bias occurs that gives an unjust advantage to the lower bidder. We term this the Lower-Bid Bias. It is then shown that this bias can be neutralized by splitting the evaluation process into two stages, whereby bid price is revealed only after the evaluation process has culminated (two-stage CB). This is demonstrated through the findings of a survey and three controlled experiments, the first to be conducted with procurement officials. We also explain why this bias is undesirable and suggest a mandatory rule, requiring two-stage CB for any competitive public procurement based on evaluation criteria other than price. Further applications of the experiments' findings are also discussed.

Keywords: public procurement, behavioral economics, cognitive bias, competitive bidding

JEL Classification: D73, H11, K00, K23

Suggested Citation

Dekel, Omer and Schurr, Amos, Cognitive Biases in Government Procurement – An Experimental Study (August 1, 2014). 10(2) Review of Law and Economics (2014) 169-200, Available at SSRN: https://ssrn.com/abstract=2616173 or http://dx.doi.org/10.2139/ssrn.2616173

Omer Dekel (Contact Author)

Ramat Gan Center of Law and Business ( email )

26 Ben Gurion Ave. Ramat Gan
POB 852 Bnei Brak
Ramat Gan, 51108
Israel

Amos Schurr

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

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