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Cluster Detection in Laboratory Auction Data: A Model-Based Approach

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  • Andrés Romeu

    ()
    (Department of Economic Analysis, University of Murcia, Spain)

Abstract

The benchmark risk-averse equilibrium model does not explain some of the outcomes obtained in experiments with first-price auctions. Nonetheless, the presence of non-linear bidding and the wide dispersion of bids have received little attention in the literature. I focus on these issues and revisit previous laboratory evidence with the help of model-based clustering techniques. The rejection of equilibrium models is found to be mostly due to the significance of non-linear bidding rules and the unexplained heterogeneity. With the use of a mixture model, the observations are classified into four groups or clusters. Significant differences between individuals and clusters are found, but so is a persistent within individual variation, which leads us to conclude that subjects do not commit to one particular bidding strategy and alternate across several processes.

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Bibliographic Info

Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 58 (2011)
Issue (Month): 4 (December)
Pages: 473-488

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Handle: RePEc:voj:journl:v:58:y:2011:i:3:p:473-488

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Web page: http://www.panoeconomicus.rs/

Related research

Keywords: Clustering; Experimental Auctions; Non-linear bidding.;

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  1. Paul Pezanis-Christou & Andres Romeu, 2002. "Structural Inferences from First-Price Auction Experiments," UFAE and IAE Working Papers 531.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Patrick Bajari & Ali Hortacsu, 2003. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Working Papers 03002, Stanford University, Department of Economics.
  3. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
  4. Maskin, Eric & Riley, John, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 439-54, July.
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  6. Dankmar Böhning & Ekkehart Dietz & Rainer Schaub & Peter Schlattmann & Bruce Lindsay, 1994. "The distribution of the likelihood ratio for mixtures of densities from the one-parameter exponential family," Annals of the Institute of Statistical Mathematics, Springer, vol. 46(2), pages 373-388, June.
  7. Chen, Kay-Yut & Plott, Charles R., 1998. "Nonlinear Behavior in Sealed Bid First Price Auctions," Games and Economic Behavior, Elsevier, vol. 25(1), pages 34-78, October.
  8. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics 7, University of Cologne, Department of Economics.
  9. Richard Engelbrecht-Wiggans & Elena Katok, 2007. "Regret in auctions: theory and evidence," Economic Theory, Springer, vol. 33(1), pages 81-101, October.
  10. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  11. Cox, James C. & Smith, Vernon L. & Walker, James M., 1983. "A test that discriminates between two models of the Dutch-first auction non-isomorphism," Journal of Economic Behavior & Organization, Elsevier, vol. 4(2-3), pages 205-219.
  12. Richard Engelbrecht-Wiggans, 1989. "The Effect of Regret on Optimal Bidding in Auctions," Management Science, INFORMS, vol. 35(6), pages 685-692, June.
  13. Neugebauer, Tibor & Selten, Reinhard, 2006. "Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets," Games and Economic Behavior, Elsevier, vol. 54(1), pages 183-204, January.
  14. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-62, September.
  15. Olivier Armantier & Nicolas Treich, 2006. "Overbidding in Independant Private-Values Auctions and Misperception of Probabilities," CIRANO Working Papers 2006s-15, CIRANO.
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