Anchoring and transaction utility: evidence from on-line auctions

Abstract

This article presents empirical evidence that people use anchoring to form their valuation of an object. Using data from the on-line auction Bidz.com, we found that people bid more for an item with a higher posted 'buy now' price than for an identical item with the lower posted 'buy now' price.

Auctions with a Buy Price: The Case of Reference-Dependent Preferences

“…The results of studies by Ariely and Simonson (2003), Häubl and Popkowski Leszczyc (2003), Kamins et al (2004), and Suter and Hardesty (2005) indicate that bidders use auctions' reserve prices to formulate their reference price and bid more aggressively in auctions with higher reserve prices. Dodonova and Khoroshilov (2004) and Popkowski Leszczyc et al (2007) find that auctions with higher buy prices cause bidders to bid more aggressively and lead to higher closing prices even when the bidders do not exercise the buy price option. Thus, as Corollary 1 indicates, our model produces bidding behavior that is consistent with behavior observed in the laboratory and the field but that other models of auctions with a buy price cannot explain.…”

“…With the rapid growth in auctions on the internet, it is likely that bidder decision making also features reference-dependence. Recent results of laboratory and field experiments by Ariely and Simonson (2003), Häubl and Popkowski Leszczyc (2003), Kamins et al (2004), and Suter and Hardesty (2005) indicate that bidders utilize auctions' reserve prices to formulate their reference price and the results of studies by Dodonova and Khoroshilov (2004) and Popkowski Leszczyc et al (2007) indicate that bidders use auctions' buy prices to formulate their reference price. Thus, studying a model of bidders with reference-dependent preferences in auction with a buy price seems warranted and is one way in which we can gain insight into bidder and seller behavior in this market institution.…”

“…The results of studies by Ariely and Simonson (2003), Häubl and Popkowski Leszczyc (2003), Kamins et al (2004), and Suter and Hardesty (2005) indicate that bidders use auctions' reserve prices to formu-late their reference price and bid more aggressively in auctions with higher reserve prices. Dodonova and Khoroshilov (2004) and Popkowski Leszczyc et al (2007) find that auctions with higher buy prices cause bidders to bid more aggressively and have higher closing prices even when the bidders do not exercise the auction's buy price option. List and Shogren (1999), Nunes and Boatwright (2004), Bernard (2005), Dholakia and Simonson (2005), Corrigan and Rousu (2006), and Drichoutis et al (2007) find evidence that bidders use other posted prices (e.g., closing prices of earlier or adjacent auctions) to formulate their reference price.…”

Are Groups 'Less Behavioral'? The Case of Anchoring

“…Assuming a robust influence of anchoring effects from previous laboratory experiments, numerous real-world behavioral effects have been attributed to anchoring. Recent examples for these applications include real estate pricing (Bucchianeri and Minson, 2013), art and online auctions (Beggs and Graddy, 2009;Dodonova and Khoroshilov, 2004), sports betting (Johnson et al, 2009;McAlvanah and Moul, 2013), earnings forecasts (Cen et al, 2013), financial forecasts (Fujiwara et al, 2013), macroeconomic forecasts (Bofinger and Schmidt, 2003;Campbell and Sharpe, 2009;Hess and Orbe, 2013) and sales forecasting (Lawrence and O'Connor, 2000).…”

The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions

“…However, auctions with a BIN option also exhibited significantly higher minimum bid requirements, which again complicates pinning down the net influence of the BIN option. Finally, Dodonova and Khoroshilov (2004) [19] use a dataset of bracelet auctions at biz.com to show that final auction prices are increasing in the BIN price. They suggest that this result is driven by anchoring: the behavioral bias that individuals fail to ignore irrelevant information when making numerical judgments.…”