The Effect of Payoff Feedback and Information Pooling on Reasoning Errors: Evidence from Experimental Markets

Authors:
David V. Budescu;Boris Maciejovsky
Affiliations:
Department of Psychology, University of Illinois, 603 E. Daniel Street, Champaign, Illinois 61820;Sloan School of Management, Massachusetts Institute of Technology, 38 Memorial Drive, Cambridge, Massachusetts 02142
Venue:
Management Science
Year:
2005

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Abstract

Avast literature shows that individuals frequently violate normative principles in reasoning. In this paper, we report the results of four studies designed to determine if information dissemination in competitive auctions can reduce, or even eliminate, logical errors in the Wason selection task. Our results show that payoff feedback and exposure to the information flow drive the aggregate behavior toward the normative solution. We also found evidence of spillover effects from informed to uninformed traders in one-sided combinatorial auctions, as well as positive transfer effects from competitive to individual settings.