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Ranking alternatives by a fair bidding rule: a theoretical and experimental analysis

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  • Werner Güth

    ()
    (Max Planck Institute of Economics, Strategic Interaction Group)

  • M. Vittoria Levati

    ()
    (Max Planck Institute of Economics, Jena, Germany, and Department of Economics, University of Verona, Verona, Italy)

  • Natalia Montinari

    (Max Planck Institute of Economics, Jena, Germany)

Abstract

We introduce a procedurally fair rule to study a situation where people disagree about the value of three alternatives in the way captured by the voting paradox. The rule allows people to select a final collective ranking by submitting a bid vector with six components (the six possible rankings of the three alternatives). In a laboratory experiment we test the robustness of the rule to the introduction of subsidies and taxes. We have two main results. First, in all treatments, the most frequently chosen ranking is the socially efficient one. Second, subsidies slightly enhance overbidding. Furthermore, an analysis of individual bid vectors reveals interesting behavioral regularities.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-005.

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Date of creation: 20 Feb 2012
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Handle: RePEc:jrp:jrpwrp:2012-005

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Keywords: Bidding behavior; Procedural fairness; Voting paradox;

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References

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  1. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  2. Werner Güth & Hartmut Kliemt, 2011. "Procedurally Fair Provision of Public Projects An axiomatic characterization," Jena Economic Research Papers 2011-016, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Marcelo Tyszler & Arthur Schram, 2011. "Information and Strategic Voting," Tinbergen Institute Discussion Papers 11-025/1, Tinbergen Institute.
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Cited by:
  1. Werner Güth & Hartmut Kliemt & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2013. "Procedurally fair collective provision: its requirements and experimental functionality," Jena Economic Research Papers 2013-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2012. "Public projects benefiting some and harming others: three experimental studies," Jena Economic Research Papers 2012-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Werner Güth, 2013. "Endogenous Community Formation and Collective Provision - A Procedurally Fair Mechanism," Jena Economic Research Papers 2013-013, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2013. "Providing negative cost public projects under a fair mechanism: An experimental analysis," Jena Economic Research Papers 2013-021, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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