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Individual Behaavior and Bidding Heterogeneity in Sealed Bid Auctions Where the Number of Bidders is Unknown

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  • R. Mark Isaac

    ()
    (Department of Economics, Florida State University)

  • Svetlana Pevnitskaya

    ()
    (Department of Economics, Florida State University)

  • Kurt Schnier

    ()
    (University of Rhode Island)

Abstract

This paper analyzes individual bidding data from a series of first price (FP) and second price (SP) sealed-bid auctions in which the number of bidders is unknown. In SP auctions we find a substantial amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in FP auctions and show theoretically that these deviations are consistent with risk averse preferences. We find essentially no heterogeneity in bidding in SP auctions where risk preferences and the number of bidders do not affect the optimal bid, while in the FP auctions heterogeneity in bidding persists and increases with experience. We conclude that heterogeneity in bidding in FP auctions is consistent with heterogeneity in risk preferences, the attempt to count the number of bidders in the auction, and bidder specific noise. (JEL D44, C91)

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File URL: ftp://econpapers.fsu.edu/RePEc/fsu/wpaper/wp2008_07_02.pdf
File Function: First version, 2008-03
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Bibliographic Info

Paper provided by Department of Economics, Florida State University in its series Working Papers with number wp2008_07_02.

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Length: 32
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:fsu:wpaper:wp2008_07_02

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Keywords: auctions; risk aversion;

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  1. McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
  2. R. Mark Isaac & Kurt Schnier, 2005. "Silent Auctions in the Field and in the Laboratory," Economic Inquiry, Western Economic Association International, vol. 43(4), pages 715-733, October.
  3. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Radosveta Ivanova-Stenzel & Timothy C. Salmon, 2004. "Bidder Preferences Among Auction Institutions," Experimental 0404005, EconWPA.
  5. El-Gamal, Mahmoud A. & Grether, David M., 1995. "Are People Bayesian? Uncovering Behavioral Strategies," Working Papers 919, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Isaac, R Mark & James, Duncan, 2000. " Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 177-87, March.
  7. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May.
  8. Louis Putterman & Christopher M. Anderson, 2003. "Do Non-strategic Sanctions Obey the Law of Demand? The Demand for Punishment in the Voluntary Contribution Mechanism," Working Papers 2003-15, Brown University, Department of Economics.
  9. Levin, Dan & Ozdenoren, Emre, 2004. "Auctions with uncertain numbers of bidders," Journal of Economic Theory, Elsevier, vol. 118(2), pages 229-251, October.
  10. Palfrey, Thomas R. & Pevnitskaya, Svetlana, 2003. "Endogenous Entry and Self-selection in Private Value Auctions: An Experimental Study," Working Papers 1172, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Harstad, Ronald M. & Kagel, John H. & Levin, Dan, 1990. "Equilibrium bid functions for auctions with an uncertain number of bidders," Economics Letters, Elsevier, vol. 33(1), pages 35-40, May.
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Cited by:
  1. Shachat, Jason & Wei, Lijia, 2013. "Discrete Rule Learning and the Bidding of the Sexes," MPRA Paper 47953, University Library of Munich, Germany.

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