Speaker: Gyula Seres, Humboldt University Berlin
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. Following Tversky and Kahneman (1974), we define an anchor as an irrelevant number that does not change the set of equilibria. We test two different anchor types. The introduction of an “uninformative” anchor (random group number) as well as a “informative” anchor (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 the informative anchor (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 depends crucially on the value of the bid limit resp. starting price.