Understanding Overbidding: Using the Neural Circuitry of Reward to Design Economic Auctions

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	Understanding Overbidding: Using the Neural Circuitry of Reward to Design Economic Auctions

kmcolo

9-26-2008 7:48 AM

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tags:

science, economics, auction, risk, loss

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<div style="margin: 12px 0px; font-family: arial; color: #333333; background: #ffffff; border: solid 4px #e5e5e5; width: 100%; clear: left;"><div class="CM_CTB_Content_Wrap" style="margin: 0px; padding: 0px;background-color: #ffffff;"><div style="border-bottom: solid 1px #dcdcdc; white-space: nowrap; margin-bottom: 8px; background-color: #eeeeee ;background-image: url(http://clipmarks.com/images/source-bg.gif); background-repeat: repeat-x; height: 24px; line-height: 24px; vertical-align: middle; padding-bottom: 4px; color: #666666; font-size: 10px;" ><a href="http://clipmarks.com/clip-to-blog/" title="see clips that are hot right now"><img src="http://content.clipmarks.com/blog_embed/53f94a6a-ebe2-4011-860f-6045505dba82/428DEE56-51B9-4355-876E-1EE94500C91D/" alt="" width="19" height="19" border="0" style="vertical-align: middle; margin: 0px 4px; display: inline; border: none; float:none;" /></a>clipped from <a title="http://www.sciencemag.org/cgi/content/abstract/321/5897/1849?sa_campaign=Email/toc/26-September-2008/10.1126/science.1158860" href="http://www.sciencemag.org/cgi/content/abstract/321/5897/1849?sa_campaign=Email/toc/26-September-2008/10.1126/science.1158860" style="font-size: 11px;">www.sciencemag.org</a></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.sciencemag.org/cgi/content/abstract/321/5897/1849?sa_campaign=Email/toc/26-September-2008/10.1126/science.1158860"><P>
We take advantage of our knowledge of the neural circuitry of<SUP> </SUP>reward to investigate a puzzling economic phenomenon: Why do<SUP> </SUP>people overbid in auctions? Using functional magnetic resonance<SUP> </SUP>imaging (fMRI), we observed that the social competition inherent<SUP> </SUP>in an auction results in a more pronounced blood oxygen level–dependent<SUP> </SUP>(BOLD) response to loss in the striatum, with greater overbidding<SUP> </SUP>correlated with the magnitude of this response. Leveraging these<SUP> </SUP>neuroimaging results, we design a behavioral experiment that<SUP> </SUP>demonstrates that framing an experimental auction to emphasize<SUP> </SUP>loss increases overbidding. These results highlight a role for<SUP> </SUP>the contemplation of loss in understanding the tendency to bid<SUP> </SUP>"too high." Current economic theories suggest overbidding may<SUP> </SUP>result from either "joy of winning" or risk aversion. By combining<SUP> </SUP>neuroeconomic and behavioral economic techniques, we find that<SUP> </SUP>another factor, namely loss contemplation in a social context,<SUP> </SUP>may mediate overbidding in auctions.<SUP> </SUP></P></blockquote></div><div style="margin: 0px 6px 6px 4px;"><table style="font-size: 11px;border-spacing: 0px;padding: 0px;" cellpadding="0" cellspacing="0" width="100%"><tr><td style="background:transparent;border-width:0px;padding:0px;">&nbsp;</td><td align="right" style="background:transparent;border-width:0px;padding:0px;width:107px" width="107"><a href="http://clipmarks.com/share/428DEE56-51B9-4355-876E-1EE94500C91D/blog/" title="blog or email this clip"><img src="http://content6.clipmarks.com/images/c2b-foot.png" border="0" alt="blog it" width="107" height="17" style="border-width:0px;padding:0px;margin:0px;" /></a></td></tr></table></div></div>

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