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Structural Inferences from First-Price Auction Experiments

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  • Paul Pezanis-Christou

    ()

  • Andres Romeu

    ()

Abstract

We use structural methods to assess equilibrium models of bidding with data from first-price auction experiments. We identify conditions to test the Nash equilibrium models for homogenous and for heterogeneous constant relative risk aversion when bidders private valuations are independent and uniformly drawn. The outcomes of our study indicate that behavior may have been affected by the procedure used to conduct the experiments and that the usual Nash equilibrium model for heterogeneous constant relative risk averse bidders does not consistently explain the observed overbidding. From an empirical standpoint, our analysis shows the possible drawbacks of overlooking the homogeneity hypothesis when testing symmetric equilibrium models of bidding and it puts in perspective the sensitivity of structural inferences to the available information.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 531.02.

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Length: 39
Date of creation: 19 Nov 2002
Date of revision:
Handle: RePEc:aub:autbar:531.02

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Related research

Keywords: first-price auctions; private independent values; experimental data; structural econometric methods; Non Linear Least Squares; constant relative risk aversion;

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References

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  1. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
  2. Laffont, J.J., 1996. "Game Theory and Empirical Economics: The Case of Auction Data," Papers 95.394, Toulouse - GREMAQ.
  3. Hendricks, K. & Paarsch, H.J., 1993. "A Survey of Recent Empirical Work Concerning Auctions," UWO Department of Economics Working Papers 9309, University of Western Ontario, Department of Economics.
  4. Kagel, John H & Roth, Alvin E, 1992. "Theory and Misbehavior in First-Price Auctions: Comment," American Economic Review, American Economic Association, vol. 82(5), pages 1379-91, December.
  5. Friedman, Daniel, 1992. "Theory and Misbehavior of First-Price Auctions: Comment," American Economic Review, American Economic Association, vol. 82(5), pages 1374-78, December.
  6. 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.
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  16. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-48, February.
  17. 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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  19. 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.
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Citations

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Cited by:
  1. Antonio Merlo & Thomas R.Palfrey, 2013. "External Validation of Voter Turnout Models by Concealed Parameter Recovery," PIER Working Paper Archive 13-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Paul Pezanis-Christou & Abdolkarim Sadrieh, 2003. "Elicited bid functions in (a)symmetric first-price auctions," Working Papers 85, Barcelona Graduate School of Economics.
  3. Olivier Armantier & Nicolas Treich, 2006. "Overbidding in Independant Private-Values Auctions and Misperception of Probabilities," CIRANO Working Papers 2006s-15, CIRANO.
  4. Klaus Abbink & Jordi Brandts & Paul Pezanis-Christou, 2002. "Auctions for Government Securities: A Laboratory Comparison of Uniform, Discriminatory and Spanish Designs," UFAE and IAE Working Papers 551.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  5. Andrés Romeu, 2011. "Cluster Detection in Laboratory Auction Data: A Model-Based Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(4), pages 473-488, December.

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