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Super-Experienced Bidders In First-Price Common-Value Auctions: Rules Of Thumb, Nash Equilibrium Bidding, And The Winner'S Curse

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  • John H. Kagel
  • Jean-Francois Richard

Abstract

Super-experienced bidders have learned to overcome the winner's curse but still earn less than 50% of Nash equilibrium profits. Subjects deviate from the complicated Nash strategy, employing piece-wise-linear bid functions that are capable, in principle, of generating an equilibrium with average profits at or above the Nash benchmark. Thus, limited computational abilities alone cannot account for the reduced earnings. Further, subjects are far from best responding within this family of piecewise-linear bid functions. Alternative factors contributing to these reduced earnings are explored. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 83 (2001)
Issue (Month): 3 (August)
Pages: 408-419

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Handle: RePEc:tpr:restat:v:83:y:2001:i:3:p:408-419

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Cited by:
  1. 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, Verein für Socialpolitik / German Economic Association 79810, Verein für Socialpolitik / German Economic Association.
  2. Crawford, Vincent P. & Iriberri, Nagore, 2005. "Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt12586197, Department of Economics, UC San Diego.
  3. John H. Kagel & Colin M. Campbell & Dan Levin, 1999. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 325-334, March.
  4. Chang, Wei-Shiun & Salmon, Timothy C. & Saral, Krista Jabs, 2013. "Procurement Auctions with Renegotiation and Wealth Constraints," MPRA Paper 50137, University Library of Munich, Germany.
  5. Lorentziadis, Panos L., 2012. "Optimal bidding in auctions of mixed populations of bidders," European Journal of Operational Research, Elsevier, Elsevier, vol. 217(3), pages 653-663.
  6. Ham, John C. & Kagel, John H. & Lehrer, Steven F., 2005. "Randomization, endogeneity and laboratory experiments: the role of cash balances in private value auctions," Journal of Econometrics, Elsevier, Elsevier, vol. 125(1-2), pages 175-205.
  7. Marco Casari & John C. Ham & John H. Kagel, 2005. "Selection bias, demographic effects, and ability effects in common value auction experiments," Staff Reports, Federal Reserve Bank of New York 213, Federal Reserve Bank of New York.
  8. Weili Ding & Steven F. Lehrer, 2000. "Using Performance Incentives to Reward the Value Added by Educators: Theory and Evidence from China," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1519, Econometric Society.
  9. Richard, Jean-François, 2000. "Conférence François-Albert Angers (1999). Enchères : théorie économique et réalité," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 76(2), pages 173-198, juin.

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