Understanding overbidding: using the neural circuitry of reward to design economic auctions.

ABSTRACT: 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 winnin

SUBMITTER: Delgado MR 

PROVIDER: S-EPMC3061565 | biostudies-literature | 2008 Sep

REPOSITORIES: biostudies-literature