Experimental Design
In this study, we aim to disentangle the impact of cognitive load (CL) on the understanding of the auction mechanism vs. on value formation, by varying the timing of the CL. We use a second price sealed bid auction mechanism with induced values. This auction is often used as is considered demand revealing (i.e., each bidder should announce his true willingness to pay for the auctioned object as a dominant strategy). In a second price sealed-bid auction, each subject simultaneously submits a bid to purchase an item X, which has an induced value. The agent who submits the highest bid wins the auction and receives the item, paying an amount equal to the second-highest bid among the bidders in the auction. In each round, each subject is assigned an induced value for item X, randomly drawn from a known distribution before the first session. The induced value is the price at which the bidder could sell the item to the experimenter after the auction.
Participants are placed under CL either when undergoing the auction training, or when entering each bidding round. To induce cognitive load, we ask participants to keep a long sequence of numbers (7-digits number) in memory prior to undergoing the training or entering a bidding round. Participants are then asked to correctly report the number after the training or bidding round. If they correctly report the number they obtain the incentive, otherwise they will not receive any payoff for the task. The incentive for the cognitive load task is higher than the incentive provided for the auction to ensure participants' effort in the task. Participants in the no cognitive load conditions are asked to memorize the long sequence of numbers (7-digits number) and correctly report the number either prior to undergoing the training or prior to entering the bidding round, i.e., immediately after memorization.
This results in four treatment conditions: no CL, CL during training, CL during the bidding round, and CL both during the training and during the bidding round.
After each auction round, participants are asked their uncertainty about their selected bid on a 0 to 10 scale. To make sure we affect understanding of the mechanism, we ask participants some questions about second price auction after the four auction periods.
To identify whether the number memorization task actually manipulates cognitive load, we use the manipulation checks of Drichoutis and Nayga (2020) and Deck and Jahedi (2015). Participants are asked to solve a multiplication and an addition task either under CL or under NO CL (in this case, participants were asked to memorize and recall the 7-digits number prior to solving the arithmetic tasks, similarly to before). In the multiplication arithmetic task, subjects had to multiply two numbers. In the addition arithmetic task, subjects had to add two numbers. The tasks were meant to differ in terms of difficulty in order to assess the severity of the manipulation on decision-making.
A cognitive load manipulation might have a differential effect on subjects with varying levels of working-memory capacity. To investigate the relationship between bidding behavior, cognitive load and cognitive ability, we measure participants’ cognitive
abilities using the 9-items reduced version of the Raven’s Standard Progressive Matrices (RSPM) test (Bilker et al., 2012). This test is used to assess mental ability associated with abstract reasoning and is considered a nonverbal estimate of fluid intelligence .