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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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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/00346530152480063
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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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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. 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.
  2. Richard, Jean-François, 2000. "Conférence François-Albert Angers (1999). Enchères : théorie économique et réalité," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(2), pages 173-198, juin.
  3. 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.
  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. 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.
  6. Lorentziadis, Panos L., 2012. "Optimal bidding in auctions of mixed populations of bidders," European Journal of Operational Research, Elsevier, vol. 217(3), pages 653-663.
  7. 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.

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