School of Economics and Finance

No. 776: Separating Bayesian Updating from Non-Probabilistic Reasoning: An Experimental Investigation

Dan Levin , Ohio State University
James Peck , Ohio State University
Asen Ivanov , Queen Mary University of London

December 20, 2015

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Through a series of decision tasks involving colored cards, we provide separate measures of Bayesian updating and non-probabilistic reasoning skills. We apply these measures to (and are the first to study) a common-value Dutch auction. This format is more salient than the strategically equivalent first-price auction and silent Dutch formats in hinting that one should condition one's estimate of the value on having the highest bid. Both Bayesian updating skills and non-probabilistic reasoning skills are shown to help subjects correct for the winner's curse, as does the saliency of the active-clock Dutch format.

J.E.L classification codes: D4, D7, D8

Keywords:Bayesian updating, Non-probabilistic reasoning, Dutch auction