The nature of information and its effect on bidding behavior: Laboratory evidence in a first price common value auction (original) (raw)
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Journal of behavioral and experimental economics, 2017
We conduct a laboratory experiment of second-price sealed bid auctions of a common value good with two bidders. Bidders face three different types of information: common uncertainty (unknown information), private information (known by one bidder) and public information (known by both bidders), and auctions differ on the relative importance of these three types of information. We find that subjects barely differentiate between private and public information and deviate from the theoretical predictions with respect to all three types of information. There is under-reaction to both private and public information and systematic overbidding in all auctions above and beyond the standard winner's curse. The Cursed Equilibrium and Level-k models successfully account for some features of the data but others remain largely unexplained.
Information acquisition in auctions: Sealed bids vs. open bids
Games and Economic Behavior, 2009
This paper studies the incentives of a bidder to acquire information in an auction when her information acquisition decision is observed by the other bidders before they bid. Our results show that the incentives are stronger in a sealed bid (second price) auction than in an open (English) auction when the information acquired refers to a common component of the value. However, the ranking is the opposite when the information acquired refers to a private component of the value, at least for a large number of bidders. Our results seem to be due to differences on the strength of the winner's curse, although a more careful analysis show that the key force is rather the loser's curse.
Overbidding in Independant Private-Values Auctions and Misperception of Probabilities
2006
We conduct an experiment to test whether probability misperception may be a possible alternative to risk aversion to explain overbidding in independent first-price private-values auctions. The experimental outcomes indicate that subjects underestimate their probability of winning the auction, and indeed overbid. Yet, when provided with feed-back on the precision of their predictions, subjects learn first to predict their probability of winning correctly, and second to curb-down significantly overbidding. The structural estimation of different behavioral models suggests that i) subjects are heterogenous with respect to risk preferences and probability perceptions, ii) subjects tend to best-respond to their stated beliefs, and iii) although necessary to explain fully behavior, risk aversion appears to play a lesser role than previously believed. Finally, our experimental findings are shown to be consistent with a standard theoretical auction model combining risk aversion and mispercep...
The Consequences of Information Revealed in Auction
2002
This paper considers the ramifications of post-auction competition on bidding behavior under different bid announcement policies. In equilibrium, the auctioneer's announcement policy has two distinct effects. First, announcement entices players to signal information to their post-auction competitors through their bids. Second, announcement can lead to greater bidder participation in certain instances while limiting participation in others. Specifically, the participation effect works against the signalling effect, thus reducing the impact of signalling found in other papers. Revenue, efficiency, and surplus implications of various announcement policies are examined. * We would like to thank Jim Anton for many helpful comments. Special thanks is also owed to S. Viswanathan, Laurie Hodrick, Robert C. Marshall, Herve Moulin, and Dan Graham for guidance and support. Thank you also to Larry Ausubel, and participants in our Econometric Society seminar. An earlier version of this paper can be found in Rhodes-Kropf's dissertation, 1997.
Impact of Valuation Ranking Information on Bidding In First-Price Auctions: A Laboratory Study
Journal of Economic Behavior & Organization, 2009
Landsberger et al. [Landsberger, M., Rubinstein, J., Wolfstetter, E., Zamir, S., 2001. First-price auctions when the ranking of valuations is common knowledge. Review of Economic Design 6, 461–480] identified optimal bidder behavior in first-price private-value auctions when the ranking of valuations is common knowledge, and they derived comparative-statics predictions regarding the auctioneer's expected revenue and the efficiency of the allocation. The experiment reported here tests the behavioral components of these comparative-statics predictions. The results support the prediction that buyers are inclined to bid more aggressively when they learn they have the low value. Contrary to the theory, buyers are inclined to bid less when they learn they have the high value. Consistent with theory, the overall proportion of efficient allocations is lower than in the first-price auction before information is revealed. But as a result of high-value bidders decreasing their bids, the expected revenue does not increase on a regular basis, contrary to the theory's predictions. Keywords: Asymmetric auctions; Laboratory experiments; Bounded rationality; Affiliation; Economics of information JEL classification codes: C92; D44; D82
Understanding Overbidding in Second Price Auctions: An Experimental Study
The Economic Journal, 2008
This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about oppoents' value has no strategetic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the \strength" (i.e. the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by \spite" motives or by the \joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modi ed \joy of winning" hypothesis than with the \spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also nd that bidder heterogeneity plays an important role in explaining their bidding behavior.
Hypothetical Bias in Private Value Auctions with Costly Information Acquisition*
2005
A number of recent papers in environmental economics have focused on the process of researching preferences – agents are uncertain about preferences but at a cost may narrow their uncertainty. This issue has arisen in formulating bids in contingent valuation as well as the debate over the divergence between WTP and WTA. In the context of contingent valuation, it has been hypothesized that the hypothetical nature of the preference elicitation biases responses. This paper provides both a theoretical model and experimental evidence to contribute to this debate. The model consists of a series of auctions where subjects compete for an object with private but unknown value – the Risk Neutral Rational Expectations model. The information regarding the value of the object is costly. Furthermore, at the end of the auction, a random number is drawn to determine if the whole process is hypothetical or not. The experiment tests this theoretical model of bidding equilibrium and analyzes the effec...
Bidder behavior in sealed bid auctions where the number of bidders is unknown
This paper analyzes individual bidding data from a series of sealed-bid auctions in which bidders do not known how many bidders they are bidding against. Unlike previous studies of sealed bid second price auctions with known number of bidders, we find a surprising amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in first price auctions and show that these deviations are consistent with risk averse preferences. We find essentially no heterogeneity in bidding in the second price auctions, where risk preferences and the number of bidders do not affect the optimal bid. In the first price auctions heterogeneity in bidding persist and increases with experience and is consistent with heterogeneity in risk preferences, the attempt to count the number of bidders in the auction, and bidder specific noise. (JEL D44, C91