Failure of the Becker-Degroot-Marschak Mechanism in Inexperienced Subjects: New Tests of the Game Form Misconception Hypothesis

Abstract

Substantial efforts have been devoted to understanding deviations from optimal behavior in games. Cason and Plott (2014, hereafter CP) propose that sub-optimal behavior may be explained by game form misconception (GFM), a failure of game form recognition, rather than by non-standard preferences or framing effects. Following CP's application of the GFM theory to the Becker-DeGroot-Marschak mechanism (Becker et al., 1964, hereafter BDM), this paper explores whether GFM can robustly explain bidding mistakes by inexperienced subjects. We derive two new tests of the GFM hypothesis based on comparing subject behavior in the misconceived task (BDM) and on the task it is misconceived for (a first price auction). While we do replicate Cason and Plot's original results, our additional tests are inconsistent with a first price misconception explaining observed deviations from optimal bidding in the BDM. At a minimum, additional forms of misconception are necessary to explain observed bidding behavior.

Keywords: Becker-DeGroot-Marschak, game form misconception, Game form recognition, mistake, preference elicitation.

JEL Classification: C8, C9