NCBI ROFL: Why you overspend on Ebay.

By ncbi rofl | August 30, 2012 7:00 pm

The value of victory: social origins of the winner’s curse in common value auctions.

“Auctions, normally considered as devices facilitating trade, also provide a way to probe mechanisms governing one’s valuation of some good or action. One of the most intriguing phenomena in auction behavior is the winner’s curse – the strong tendency of participants to bid more than rational agent theory prescribes, often at a significant loss. The prevailing explanation suggests that humans have limited cognitive abilities that make estimating the correct bid difficult, if not impossible. Using a series of auction structures, we found that bidding approaches rational agent predictions when participants compete against a computer. However, the winner’s curse appears when participants compete against other humans, even when cognitive demands for the correct bidding strategy are removed. These results suggest the humans assign significant future value to victories over human but not over computer opponents even though such victories may incur immediate losses, and that this valuation anomaly is the origin of apparently irrational behavior.”

Photo: flickr/Financial Times photos

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CATEGORIZED UNDER: feelings shmeelings, NCBI ROFL
  • wilzard

    Winning feels good, and people will overvalue, and hence, overpay to obtain something desirable? I am shocked, I tell you, absolutely shocked! /snark

  • Rosa Li

    The surprising finding isn’t just that winning feels good – it’s that winning against other people feels so good that it distorts our abilities to respond appropriately and behave rationally, but winning against a computer doesn’t have the same effect.

    In other words, people are capable of behaving optimally in a non-social competitive context (bidding against a computer), but adding a human opponent throws us off. This suggests that there’s something special about decision-making in social contexts and hints at how our irrationalities evolved.

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NCBI ROFL is the brainchild of two Molecular and Cell Biology graduate students at UC Berkeley and features real research articles from the PubMed database (which is housed by the National Center for Biotechnology information, aka NCBI) that they find amusing (ROFL is a commonly-used internet acronym for "rolling on the floor, laughing"). Follow us on twitter: @ncbirofl

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