Independent Private Value Auctions: Bidder Behavior in First (original) (raw)

Don’t Fear the Simplicity-An Experimental Analysis of Auctions

2017

5 I evaluate the performance of four static sealed-bid package auctions in an experimental 6 setting with complementarities. The valuation model comprises two items, and three bidders: 7 two ‘local’ bidders demand one item only, while the third (global) bidder only wants both. 8 The rules I compare include the Vickrey and first-price auctions, Vicrkey Nearest Rule 9 and the Reference Rule. Auction-level tests find the first-price auction revenue dominant 10 overall without losing efficiency, while the Vickrey auction performs worst; the other two 11 rules rank intermediate. Bidder-level tests of the experimental data reject the competitive 12 equilibrium bidding functions: overbidding is widespread in all four auctions, and bidders 13 are averse to submitting boundary bids. In core-selecting auctions bidders do not revert 14 to truth-telling rules of thumb. I also observe behavior consistent with collusive bidding 15 in the Vickrey auction. Contrary to theoretical predictions, the V...

1 Reference-Dependent Preferences in First Price Auctions

2015

Abstract: In this paper I develop a Prospect theory based model to explain bidding in first-price auctions. As suggested in the literature, bidding occurs in these auctions in an inherently ambiguous environment due to lack of information about bidders ’ risk attitudes and bidding strategies. I show that bidding in first-price auctions can be rationalized as a combination of reactions to underlying ambiguity and anticipated loss aversion. Using data from experimental auctions, I provide evidence that in induced value auctions against human bidders this approach works well. In auctions with prior experience and /or against risk-neutral Nash bidders where ambiguity effects could be altogether irrelevant, anticipated loss aversion by itself can explain aggressive bidding. This is a novel result in the literature. Using data from experiments I find that ambiguity effects become negligible in auctions with prior experience (with loss aversion) against (i) experienced human bidders and (i...

Theory and Misbehavior of First-price Auctions: Comment

1992

Glenn Harrison's recent (1989) article in this Review has provoked the loudest debate yet heard among experimental economists. His critique of the James Cox, Vernon Smith, and James Walker (1983a,b, 1985a,b, 1988; henceforth CSW) laboratory studies of first-price sealed-bid auctions with independent and private values, in my view, raises a fundamental methodological issue that is well worth debating, and the CSW research program deserves further discussion. In this short comment I confine myself to what I see as the most important issues and do not try to address all evidence relevant to the ongoing debate. First, I summarize Harrison's central argument very briefly. After pointing out two shortcomings in Harrison's specific analysis of CSW, I propose a methodological reconciliation. Finally (and with some trepidation since my own experience with the auction data is relatively slight), I suggest an alternative approach to understanding the anomalies discovered by CSW.