Are Strategies Anchored?

38 Pages Posted: 17 Apr 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: April 7, 2020

Abstract

Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence and magnitude in economic settings. This article studies the role of anchoring bias in strategic interactions. We test experimentally two different anchor types using auctions. The announcement of a random group identification number but also of an upper bid limit, despite being irrelevant for a rational player, result in higher bids in first-price sealed-bid auctions.

In Dutch auctions, the effect of the bid limit is negative. Based on these results 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. The observed adjustment behavior can be explained as a rational response to anchored biased beliefs.

Keywords: Anchoring Bias, Auctions, Games, Incomplete Information, Strategy

JEL Classification: D44, D91, C72, C91

Suggested Citation

Ivanova-Stenzel, Radosveta and Seres, Gyula, Are Strategies Anchored? (April 7, 2020). TILEC Discussion Paper No. DP2020-009, Available at SSRN: https://ssrn.com/abstract=3577661 or http://dx.doi.org/10.2139/ssrn.3577661

Radosveta Ivanova-Stenzel (Contact Author)

affiliation not provided to SSRN

Gyula Seres

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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