An experimental evaluation of bidders' behavior in ad auctions

We performed controlled experiments of human participants in a continuous sequence of ad auctions, similar to those used by Internet companies. The goal of the research was to understand users' strategies in making bids. We studied the behavior under two auction types: (1) the Generalized Second-Price (GSP) auction and (2) the Vickrey--Clarke--Groves (VCG) payment rule, and manipulated also the participants' knowledge conditions: (1) explicitly given valuations and (2) payoff information from which valuations could be deduced. We found several interesting behaviors, among them are: - No convergence to equilibrium was detected; moreover the frequency with which participants modified their bids increased with time. - We can detect explicit "better-response" behavior rather than just mixed bidding. - While bidders in GSP auctions do strategically shade their bids, they tend to bid higher than theoretically predicted by the standard VCG-like equilibrium of GSP. - Bidders who are not explicitly given their valuations but can only deduce them from their gains behave a little less "precisely" than those with such explicit knowledge, but mostly during an initial learning phase. - VCG and GSP yield approximately the same (high) social welfare, but GSP tends to give higher revenue.