Laboratory Testbeds and Nonmarket Valuation: The Case of Bidding Behavior in a Second Price Auction with an Outside Option
AbstractResearchers now use the lab to examine the behavioral underpinnings of valuation before the field application which some argue has less experimental control. But lab valuation work raises its own set of concerns when it uses private goods to explore non-market valuation behavior because private goods have substitutes often unaccounted for in the lab. Therefore, the lab as a tool to testbed field valuation work may be limited. Herein we design an induced valuation experiment to explore bidding behavior in a second-price auction with an outside option that is a perfect substitute for the auction commodity. Theory predicts that rational bidders will consider the prices of outside options when formulating bidding strategies, and will reduce their bids whenever their resale value exceeds the price of the outside option. Our results suggest that bidders account for outside options when formulating bids with behavior following comparative static predictions. In addition, we provide evidence concerning hypothetical versus actual behavior with induced values â the data suggesting a hypothetical bias in the level of bids but not in bid shaving. Copyright Kluwer Academic Publishers 2004
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Bibliographic InfoPaper provided by Department of Economics, Appalachian State University in its series Working Papers with number 02-13.
Date of creation: 2002
Date of revision:
Publication status: published in Environmental and Resource Economics
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Web page: http://www.business.appstate.edu/departments/economics/
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- Todd Cherry & Peter Frykblom & Jason Shogren & John List & Melonie Sullivan, 2004. "Laboratory Testbeds and Non-Market Valuation: The Case of Bidding Behavior in a Second-Price Auction with an Outside Option," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 29(3), pages 285-294, November.
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