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Dominant Strategy Adoption and Bidders' Experience with Pricing Rules

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Author Info
Ronald Harstad ()

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Abstract

Truthful revelation is a dominant strategy in both English (oral ascending bid) and second-price sealed-bid private-values auctions. Controlled observations of English auctions are largely consistent with the dominant strategy prediction, but laboratory second-price auctions exhibit substantial and persistent overbidding, even with prior experience. However, the experience of having bid in an English auction has a significant learning effect, moving bidding in subsequent second-price auctions closer to the dominant strategy. I explore two treatments isolating facets of the lessons learned from English auction participation, leading me to the following conclusions. Part of the lesson carried over appears to be considering prices one-by-one, but most of it appears to be a crude awareness that overbidding leads to losses. A claim that English auction experience teaches subjects to recognize the dominant strategy in second-price auctions seems overly optimistic. I introduce a nonparametric technique to test coefficient restrictions when the assumption of normally distributed errors is untenable. Copyright Kluwer Academic Publishers 2000

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Publisher Info
Article provided by Springer in its journal Experimental Economics.

Volume (Year): 3 (2000)
Issue (Month): 3 (December)
Pages: 261-280
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Handle: RePEc:kap:expeco:v:3:y:2000:i:3:p:261-280

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Related research
Keywords: auctions; experiments; dominant strategy; nonparametric coefficient; restriction test;

References listed on IDEAS
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    Other versions:
  4. repec:att:wimass:199325 is not listed on IDEAS
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  9. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October. [Downloadable!] (restricted)
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  11. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July. [Downloadable!] (restricted)
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  13. Selten, Reinhard & Joachim Buchta, 1994. "Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions," Discussion Paper Serie B 270, University of Bonn, Germany.
  14. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December. [Downloadable!] (restricted)
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  17. Harrison, Glenn W, 1994. "Expected Utility Theory and the Experimentalists," Empirical Economics, Springer, vol. 19(2), pages 223-53.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yannick Gabuthy & Nadège Marchand, 2003. "Does Resorting to Online Dispute Resolution Promote Agreements ? Experimental Evidence," Post-Print halshs-00178587_v1, HAL. [Downloadable!]
  2. Young Han Lee & Ulrike Malmendier, 2007. "The Bidder's Curse," NBER Working Papers 13699, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Yannick Gabuthy & Nadège Marchand, 2004. "Does Resorting to Online Dispute Resolution Promote Agreements? Experimental Evidence," Experimental 0402002, EconWPA. [Downloadable!]
  4. Alexander Elbittar & Andrei Gomberg, 2008. "A laboratory study of Demand Reduction and Collusion in Uniform- and Discriminatory-Price Auctions," Working Papers 0801, Centro de Investigacion Economica, ITAM. [Downloadable!]
  5. Tatsuyoshi Saijo & Timothy N. Cason & Tomas Sjostrom, 2003. "Secure Implementation Experiments:Do Strategy-proof Mechanisms Really Work?," Discussion papers 03012, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
    Other versions:
  6. Yannick Gabuthy & Nadège Marchand, 2004. "Does Resorting to Online Dispute Resolution Promote Agreements? Experimental Evidence," Working Papers 0401, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  7. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2008. "A pure variation of risk in private-value auctions," Research Memoranda 050, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  8. Vlad Mares & Mikhael Shor, 2003. "Joint Bidding in Common Value Auctions: Theory and Evidence," Game Theory and Information 0305001, EconWPA. [Downloadable!]
  9. Florian Englmaier & Pablo Guillen & Loreto Llorente & Sander Onderstal & Rupert Sausgruber, 2006. "The Chopstick Auction: A Study of the Exposure Problem in Multi-Unit Auctions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  10. Rod Garratt & Mark Walker & John Wooders, 2004. "Behavior in Second-Price Auctions by Highly Experienced eBay Buyers and Sellers," University of California at Santa Barbara, Economics Working Paper Series 04-04, Department of Economics, UC Santa Barbara. [Downloadable!]
  11. John Hey & Massimo Paradiso., . "Dynamic Choice and Timing-Independence: an experimental investigation," Discussion Papers 99/26, Department of Economics, University of York. [Downloadable!]
  12. Bochet, Olivier, 2006. "Equal-Budget Choice Equivalent Solutions in Exchange Economies," Research Memoranda 025, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  13. Radosveta Ivanova-Stenzel & Timothy C. Salmon, 2006. "Anomalies in Auction Choice Behavior," Discussion Papers 174, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  14. Roider, Andreas & Schmitz, Patrick W., 2007. "Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices," CEPR Discussion Papers 6476, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Bernard, John C. & Zhang, Chao & Gifford, Katie, 2006. "An Experimental Investigation of Consumer Willingness to Pay for Non-GM Foods When an Organic Option Is Present," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(2), October. [Downloadable!]
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