An Empirical Investigation Into the Use of Heuristics and Information Cues by Bidders in Online Auctions

Abstract

Bidders in online auctions can choose from among thousands of listed products that vary in quality, quantity and condition. Each listing varies in the amount and quality of information provided by the seller. Prior research suggests that when faced with complex and uncertain situations, individuals tend to use simple heuristics and cues in a bounded rational decision‐making process. The current study explores the differences in listings, and the choice and impact of varying information cues on bidding behaviour. Empirical evidence is presented of bidders using the sellers' minimum (initial) price as a prescreening signal, and being attracted to auctions with low initial prices while avoiding auctions that have a higher initial price. The research also explores the impact of auction attractiveness on final values, and finds a significant impact of vivid information signals on the number of bidders and the final values of competing auctions.