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.
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