*Towards a competitive arousal model of decision-making: a study of auction fever in live and internet auctions

(with Gillian Ku, Deepak Malhotra)

Organizational Behavior and Human Decision Processes, 96, 89-103

Abstract

In 1999, Chicago sponsored a public art exhibit of over 300 life-sized fiberglass cows that culminated in 140 Internet and live, in-person auctions. Collectively, the cows sold for almost seven times their initial estimates. These unexpectedly high final prices provided the impetus for a model of decision-making, "competitive arousal," which focuses on how diverse factors such as rivalry, social facilitation, time pressure, and/or the uniqueness of being first can fuel arousal, which then impairs decision-making. In Study 1, live and Internet bidding and survey data from 21 auctions throughout North America tested the model's predictions, as well as hypotheses derived from rational choice and escalation of commitment models. Analyses provided considerable support for the competitive arousal and escalation models, and no support for rational choice predictions. Study 2 was a laboratory experiment that investigated the similarities and differences between escalation and competitive arousal, finding again that both can result in overbidding. The discussion focuses on the implications of these findings and on the broader issue of competitive arousal and escalation and their impact on decision-making.