TY - JOUR
T1 - Understanding overbidding
T2 - Using the neural circuitry of reward to design economic auctions
AU - Delgado, Mauricio R.
AU - Schotter, Andrew
AU - Ozbay, Erkut Y.
AU - Phelps, Elizabeth A.
PY - 2008/9/26
Y1 - 2008/9/26
N2 - We take advantage of our knowledge of the neural circuitry of reward to investigate a puzzling economic phenomenon: Why do people overbid in auctions? Using functional magnetic resonance imaging (fMRI), we observed that the social competition inherent in an auction results in a more pronounced blood oxygen level-dependent (BOLD) response to loss in the striatum, with greater overbidding correlated with the magnitude of this response. Leveraging these neuroimaging results, we design a behavioral experiment that demonstrates that framing an experimental auction to emphasize loss increases overbidding. These results highlight a role for the contemplation of loss in understanding the tendency to bid "too high." Current economic theories suggest overbidding may result from either "joy of winning" or risk aversion. By combining neuroeconomic and behavioral economic techniques, we find that another factor, namely loss contemplation in a social context, may mediate overbidding in auctions.
AB - We take advantage of our knowledge of the neural circuitry of reward to investigate a puzzling economic phenomenon: Why do people overbid in auctions? Using functional magnetic resonance imaging (fMRI), we observed that the social competition inherent in an auction results in a more pronounced blood oxygen level-dependent (BOLD) response to loss in the striatum, with greater overbidding correlated with the magnitude of this response. Leveraging these neuroimaging results, we design a behavioral experiment that demonstrates that framing an experimental auction to emphasize loss increases overbidding. These results highlight a role for the contemplation of loss in understanding the tendency to bid "too high." Current economic theories suggest overbidding may result from either "joy of winning" or risk aversion. By combining neuroeconomic and behavioral economic techniques, we find that another factor, namely loss contemplation in a social context, may mediate overbidding in auctions.
UR - http://www.scopus.com/inward/record.url?scp=52949084662&partnerID=8YFLogxK
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U2 - 10.1126/science.1158860
DO - 10.1126/science.1158860
M3 - Article
C2 - 18818362
AN - SCOPUS:52949084662
SN - 0036-8075
VL - 321
SP - 1849
EP - 1852
JO - Science
JF - Science
IS - 5897
ER -