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

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

Author Info

John H. Kagel
Jean-Francois Richard

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John H. Kagel

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 Technolog

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Publisher 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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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 1519, Econometric Society. [Downloadable!]
Vincent P. Crawford & Nagore Iriberri, 2005. "Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Levine's Bibliography 784828000000000604, UCLA Department of Economics. [Downloadable!]
Other versions:
- Vincent Crawford & Nagore Iriberri, 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 2005-13, Department of Economics, UC San Diego. [Downloadable!]
- Vincent P. Crawford & Nagore Iriberri, 2006. "Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Levine's Bibliography 321307000000000256, UCLA Department of Economics. [Downloadable!]
- Vincent P Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Levine's Bibliography 321307000000001005, UCLA Department of Economics. [Downloadable!]
- Vincent P. Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Econometrica, Econometric Society, vol. 75(6), pages 1721-1770, November. [Downloadable!] (restricted)
Colin M. Campbell & John H. Kagel & Dan Levin, 1999. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 89(1), pages 325-334, March. [Downloadable!] (restricted)
Other versions:
- Kagel, John H & Levin, Dan, 1991. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 81(1), pages 362-69, March. [Downloadable!] (restricted)

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