Quasi-Endowment Effect and Opponent Effect Can Influence the Bidders

MING CHUAN UNIVERSITY

GROUP 12‘S MEMBERS:

TE KIM THANH (STEVEN) 06911080

NGUYEN THI KIM NGAN (JASMINE) 06911256

YUTING HONG (MELODY) 05110695

AUCTION FEVER

1. SUMMARY

We conduct 2 experiment to prove 2 factors “quasi-endowment effect and opponent effect can influence the bidders’ behaviours:

-Experiment 1: A total of 92 students at the University of California at Berkeley were invited to participate in this survey. There were four different questionnaire forms which based on a 2 (high competition vs. low competition) X 2 (low duration of ownership vs. high duration of ownership) design and the basic scenario was imagine that the subjects are shopping for a particular new watch with a retail cost of $75. A local store is offering the watch in an auction where the participants were asked to write down in an envelope the highest price he or she is willing to pay for the watch without any limitation. All of the envelopes are placed into a large glass bowl on the counter from on Monday morning to on Friday evening all of them will be opened and the watch will go to the highest bidder, but the highest bidder will pay the price set by the second highest bidder plus 10¢. The name of the highest bidder will be posted on the glass bowl daily. The auction goes on without interruption and the envelopes of the top two bids always remain in the bowl.

- In the low-competition condition, subjects were told that there were only “a few bids in the bowl.” In the high-competition condition, they were told that there were “a lot of bids in the bowl.” In the long duration of ownership condition, subjects pretended to had submitted a bid on Monday and were listed as the leading bidder on Monday evening and no longer be the highest bidder on Thursday night. In the long duration of ownership condition, subjects imagined that they had submitted a bid on Monday and on Monday evening they were listed as the leading bidder, but on Thursday evening they were no longer the highest bidder.

- After all, if the last day of the auction was Friday, participants were asked to circle which possible bids ranging from 1 to 100 they would place.

2. SIGNIFICANT

If you had ever joined in the auction before, you have felt the intensity, pressure and even the passion from the battle between the smart bidders. Each bidder has their own strategies to win, knockout the opponent and own the items which are valuable to them. To compete with the experienced bidders, the newcomer has to understand their plan inside their mind and especially which the mechanisms affect their behavior, their making decision motivation. Many scientists and economists have done researches on the factors can influence and change the bidders’ thought of making decision in many auctions to gain the highest utility as well as paying the correct value of items. There is main element that indicated their impacts on the acts of bidders during the auction: quasi-endowment.

3. PROCEDURE

To prove that mechanism that can dynamically influence the valuations of items and the bids placed as the auction unfolds: quasi-endowment. The following experiment is designed to test whether that mechanism takes place in auctions.

We create forms of survey including four different questionnaire forms based on a 2 (high competition and. low competition) X 2 (low duration of ownership and high duration of ownership) design. Firstly, before starting the survey, we asked the participants to write their age (Make sure that they are above 18).

Then, each condition presented a basic common scenario: Imagine you are looking for a new watch whose retail cost of $75 to buy. A local store near your house is presenting an auction for selling the new watch. In this auction, each potential buyer was asked to write down the highest price he or she is willing to pay for the watch in an envelope which are put down into a big glass bowl on the cashier and no limitations in the quantity of bidders. The auction begins on Monday morning and on Friday evening. Friday evening is the time when all the envelopes will be opened and the highest bidder will win and own the watch. At the end of every day, highest bidder with the name will be posted on the glass bowl but the auction are not suspended, continues until Friday evening with the envelopes of the top two bids always remain in the bowl.

After we finish the form with 3 languages (Vietnamese, Chinese and English), all members will post it on our Facebook account, share as much as possible and invite many friends and people on Facebook to conduct this survey regardless of their gender, their social status, their occupation, their education background. To ensure that the participants are eligible for joining in this survey, the subjects have to be above 18 years old. When we want to take part in the survey, they just click into the form we posted, write their age and start to conduct.

When we finish explaining the auction to the participants, we give the participants 2 circumstances:

1)