Experimental investigation of the impact of risk preference on construction bid markups

Risk preference plays an important role in decision-making. The objective of this paper is to show how much risk preferences influence bid price decision-making in bidding for construction contracts. Based on the literature review and interviews, we designed a bidding situation and conducted an experiment to test decision maker responses. 172 participants with lengthy experience in bidding for construction work took part in the experiment. Both descriptive statistics and regression analysis are used for deep information mining of the data. We find that risk preference has a significantly positive effect on bid mark-ups. Based on a comparison of the influences of risk preferences on the bid price in different competitive bidding situations, we find that the bid price decreases with the number of bidders and it is even lower when the number of bidders is unknown. Therefore, considering both risk preference and the number of bidder is important to make a reasonable bid decision making. Finally, advice is also provided to construction companies for evaluating the leader’s decisions and decision-making team