Anchoring & Auctions - Willingness to pay for public goods and anchoring in an auction

Abstract

This thesis discusses the cognitive bias anchoring observed in economics, psychology and in general. Anchoring effect describes the common human tendency to rely too heavily on the first piece of information offered (the anchor) when making decisions. The thesis reports on an experiment examining anchoring effect on willingness to pay for a set of consumer goods. In this study I find that the actual willingness to pay for various consumer goods can be manipulated by an uninformative anchor, replicating Ariely et al. (2003). I furthermore demonstrate that the anchoring effect decrease and in some instances vanish under a Vickrey auction.