Aldemir, Bora (2022) An agent based model for exploring the effects of overconfidence on the winner's curse in construction projects. PhD thesis, Izmir Institute of Technology, Turkey.
Abstract
As a result of errors in cost estimation, the winning companies in competitive environments such as bids, auctions, etc. fail to achieve the anticipated profit or even incur losses. This phenomenon is labelled as the "winner's curse." Diverse causes led to the occurrence of this circumstance. Until recently, technical errors were thought to cause most construction estimation errors. Behavioral economics has shown that certain biases in individual decision-making can also contribute to these undesirable situations. Overconfidence is common. This illusion is when a person thinks they are better at making decisions than they really are. The agent-based modeling method was used to examine this bias. This method investigates the system pattern created by heterogeneous individuals with independent macro-level behavior. In this study, individuals can be considered as construction companies. The prevalent pattern in the sector is the phenomenon of the winner's curse. However, focusing solely on the overconfidence effect may not yield meaningful results. Risk aversion is regarded as a protective behavior against the negative effects of the overconfidence. There may also be a correlation between the number of bidders and the winner's curse. This study demonstrates that the phenomenon of the winner's curse exists in all dimensions of the overconfidence effect. When the number of bidders is small, overconfidence behavior has little impact on the winner's curse, but when the number of bidders is medium or large, the winner's curse increases slightly as the overconfidence effect decreases. Risk aversion does not provide any protection against the winner's curse phenomenon.
| Item Type: | Thesis (Doctoral) |
|---|---|
| Thesis advisor: | Kale, Serdar |
| Index terms: | number of bidders, cost estimating, profit, construction company, construction project, bias, decision-making, agent, agent-based modelling, estimation, dimension |
| Subjects: | modelling and simulation, health monitoring assessment and metrics, financial and cost management, probability and distributions, decision analysis, organization, practitioner, economic analysis, bidding, production management |
| Topics: | Health and Safety, Project Management, Risk Management, Procurement, Cost Management, Business Strategy, Research Practice, Roles and Professions |
| Descriptive scope: | 4 PCTA |
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