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Efficiency in Second-Price Auctions: A New Look at Old Data

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Author Info
Rod Garratt (University of California, Santa Barbara)
John Wooders (University of Arizona)

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Abstract

The experimental economics literature on second-price sealed-bid private value auctions has established that subjects typically bid more than their value, despite the fact that value bidding is a dominant strategy in such auctions. Moreover, the laboratory evidence shows that subjects do not learn to bid their values as they gain more experience. In the present paper, we re-examine the second-price auction data from Kagel and Levin's (1993) classic paper. We find that auction efficiency is rising over time, even though the frequency of overbidding is unchanged. We argue that the rise in efficiency is due to a decline in the variability of overbidding. This is consistent with subjects learning to bid more like each other.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number 02-04.

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Date of creation: 09 Feb 2004
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Handle: RePEc:cdl:ucsbec:02-04

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  1. Bramsen, Jens-Martin, 2008. "Learning to bid, but not to quit – Experience and Internet auctions," MPRA Paper 14815, University Library of Munich, Germany. [Downloadable!]
  2. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2008. "A pure variation of risk in private-value auctions," Research Memoranda 050, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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This page was last updated on 2009-10-20.

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