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We investigate the relevance of conditional reasoning and belief formation for the occurrence of the winner's curse with the help of two experimental manipulations.First, we compare results from a very simple common-value auction game with results from a transformed version of this game that does not require any conditioning on future events. In human opponent settings, we observe significant differences in behavior across the two games. Second, we investigate subjects' behavior when they face naïve computerized opponents and after they have faced them. We find that both strong and weak assistance in belief formation changes subjects' play significantly in the auction game. Overall, the results suggest that the difficulty of conditioning on future events is at least as important in explaining frequent occurrences of the winner's curse as is the challenge to form beliefs.JEL classification: D44, D81, D82

The present study explores the value of machine learning techniques in the classification of communication content in experiments. Previously human-coded datasets are used to both train and test algorithm-generated models that relate word counts to categories. For various games, the computer models of the classification are able to match out-of-sample the human classification to a considerable extent. The analysis raises hope that the substantial effort going into such studies can be reduced by using computer algorithms for classification. This would enable a quick and replicable analysis of large-scale datasets at reasonable costs and widen the applicability of such approaches. The paper gives an easily accessible technical introduction into the computational method.

In order to assess the extent to which features of a game affect the strategic sophistication of the people involved, this study investigates the relevance of differing objectives (matching/mismatching) and of virtually moving first or second in the “hide and seek” game. In three different treatments, mismatchers and matchers are not found to exhibit significantly different levels of reasoning although level averages and winning probabilities always are in favor of the matchers. Varying the virtual timing of the game has a significant impact on the shape of the level distribution. The analysis relies on intrateam communication, whose coding is shown to be stable and replicable

In explaining the winner's curse, recent approaches have focused on one of two cognitive processes: conditional reasoning and belief formation. We provide the first joint experimental analysis of the role of these two obstacles. First, we observe that overbidding decreases significantly between a simple common-value auction and a transformed version of this auction that does not require conditional reasoning. Second, assistance in belief formation leads to comparable behavioral changes in both games. The two effects are of similar magnitude and amplify each other when jointly present. We conclude that the combination and the interaction of the two cognitive processes in auctions lead to relatively low strategic sophistication compared to other domains. The study's focus on games' objective cognitive challenges is potentially useful for improving predictions across games and complements the common focus on behavioral models and their explanatory power