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Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study

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  • Asen Ivanov
  • Dan Levin
  • Muriel Niederle

Abstract

We use a second-price common-value auction, called the maximal game, to experimentally study whether the winner's curse (WC) can be explained by models which retain best-response behavior but allow for inconsistent beliefs. We compare behavior in a regular version of the maximal game, where the WC can be explained by inconsistent beliefs, to behavior in versions where such explanations are less plausible. We find little evidence of differences in behavior. Overall, our study casts a serious doubt on theories that posit the WC is driven by beliefs. Copyright 2010 The Econometric Society.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 78 (2010)
Issue (Month): 4 (07)
Pages: 1435-1452

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Handle: RePEc:ecm:emetrp:v:78:y:2010:i:4:p:1435-1452

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References

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  1. Eyster, Erik & Rabin, Matt, 2002. "Cursed Equilibrium," Department of Economics, Working Paper Series qt6xf4782t, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  12. Asen Ivanov & Dan Levin & James Peck, 2008. "Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values," Working Papers 0801, VCU School of Business, Department of Economics.
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Citations

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Cited by:
  1. Alistair Wilson & Emanuel Vespa, 2012. "Communication With Multiple Senders and Multiple Dimensions: An Experiment," Working Papers 461, University of Pittsburgh, Department of Economics, revised Sep 2012.
  2. Brünner, Tobias & Becker, Alice, 2013. "Bidding in common value fair division games," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79810, Verein für Socialpolitik / German Economic Association.
  3. Nobuyuki Hanaki & Nicolas Jacquemet & Stéphane Luchini & Adam Zylbersztejn, 2013. "Bounded Rationality and Strategic Uncertainty in a Simple Dominance Solvable Game," Economics Discussion / Working Papers 13-14, The University of Western Australia, Department of Economics.
  4. Alistair J. Wilson & Emanuel Vespa, 2012. "Communication With Multiple Senders and Multiple Dimensions: An Experiment," Working Papers 384, University of Pittsburgh, Department of Economics, revised Mar 2012.
  5. Sanjit Dhami & Ali al-Nowaihi, 2013. "Evidential equilibria: Heuristics and biases in static games," Discussion Papers in Economics 13/25, Department of Economics, University of Leicester.
  6. Brocas, Isabelle & Carrillo, Juan D & Castro, Manuel, 2010. "The nature of information and its effect on bidding behavior: laboratory evidence in a common value auction," CEPR Discussion Papers 7848, C.E.P.R. Discussion Papers.
  7. Nadine Chlaß, 2011. "On Individual Cursedness - How personality shapes individuals' sensitivity to incur a winner's curse -," Jena Economic Research Papers 2011-027, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  8. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
  9. Qin, Xiangdong & Zhang, Fangzhou, 2013. "Using clock auctions to dissolve partnership: An experimental study," Economics Letters, Elsevier, vol. 119(1), pages 55-59.
  10. Marina Agranov & Elizabeth Potamites & rew Schotter & Chloe Tergiman, 2012. "Beliefs and Endogenous Cognitive Levels: An Experimental Study," Mathematica Policy Research Reports 7497, Mathematica Policy Research.
  11. Sotiris Georganas & Paul J. Healy & Roberto A. Weber, 2014. "On the Persistence of Strategic Sophistication," CESifo Working Paper Series 4653, CESifo Group Munich.

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