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Bid outcome processing in Vickrey auctions: an ERP study

Newton-Fenner, A., Tyson-Carr, J., Roberts, H., Henderson, J., Hewitt, D., Byrne, A., Fallon, N., Gu, Y. ORCID:, Gorelkina, O., Xie, Y., Pantelous, A., Giesbrecht, T. and Stancak, A. (2022) Bid outcome processing in Vickrey auctions: an ERP study. Psychophysiology, 59 (12). e14125. ISSN 0048-5772

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To link to this item DOI: 10.1111/psyp.14125


Online retailers often sell products using a socially competitive second-price sealed-bid auction known as a Vickrey auction (VA), an incentivized demand-revealing mechanism used to elicit players' subjective values. The VA presents a situation of risky decision-making, which typically implements value processing and a loss aversion mechanism. Neural outcome processing of VA bids are not known; this study explores this for the first time using EEG. Twenty-eight healthy participants bid on household items against an anonymous, computerized opponent. Bid outcome event-related potentials were predicted to differentiate between three conditions: outbid (no-win), large margin win (bargain), and small margin win (snatch). Individual loss aversion values were evaluated in a separate behavioral experiment offering gains or losses of variable amounts but equal chances against an assured gain. Processing outcomes of VA bids were associated with a feedback-related negativity (FRN) potential with a spatial maximum at the vertex (251–271 ms), where bargain win trials resulted in greater FRN amplitudes than snatch win trials. Additionally, a P300 potential was sensitive to win versus no-win outcomes and to retail price. Individual loss aversion level did not correlate with the strength of FRN or P300. Results show that outcome processing in a VA is associated with FRN that differentiates between relatively advantageous and less advantageous gains, and a P300 that distinguishes between the more and less expensive auction items. Our findings pave the way to an objective exploration of economic decision-making and purchasing behavior involving a widely popular auction.

Item Type:Article
Divisions:Henley Business School > Real Estate and Planning
ID Code:108727


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