MEASURING REGRET: EMOTIONAL ASPECTS OF AUCTION DESIGN

Recent research strengthens the conjecture that human decision-making stems from a complexinteraction of rational judgment and emotional processes. A prominent example of the impact ofemotions in economic decision-making is the effect of regret-related information feedback on biddingbehaviour in first-price sealed-bid auctions. Revealing the information “missed opportunity to win”upon losing an auction, results in higher bids. Revealing the information “money left on the table”upon winning an auction, results in lower bids. The common explanation for this pattern is winner andloser regret. However, this explanation is still hypothetical and little is known about the actualemotional processes that underlie this phenomenon. This paper investigates actual emotionalprocesses in auctions with varying feedback information. Thereby, we provide an approach thatcombines an auction experiment with psychophysiological measures which indicate emotionalinvolvement. Our economic results are in line with those of previous studies. Moreover, we can showthat loser regret results in a stronger emotional response than winner regret. Remarkably, loser regretis strong for high values of “missed opportunity.” However, the pattern for different amounts of“money left on the table” is diametric to what winner regret theory suggests.