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Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse

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  • Glenn W. Harrison
  • John A. List

Abstract

There has been a dramatic increase in the use of experimental methods in the past two decades. An oft-cited reason for this rise in popularity is that experimental methods provide the necessary control to estimate treatment effects in isolation of other confounding factors. We examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain. Using common value auction theory as our guide, we identify naturally occurring settings in which one can test the theory. In our treatments the subjects are not picked at random, as in lab experiments with student subjects, but are deliberately identified by their trading roles in the natural field setting. We find that experienced agents bidding in familiar roles do not fall prey to the winner's curse. Yet, when experienced agents are observed bidding in an unfamiliar role, we find that they frequently fall prey to the winner's curse. We conclude that the theory predicts field behavior well when one is able to identify naturally occurring field counterparts to the key theoretical conditions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13072.

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Date of creation: Apr 2007
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Publication status: published as GlennW. Harrison & JohnA. List, 2008. "Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse," Economic Journal, Royal Economic Society, vol. 118(528), pages 822-843, 04.
Handle: RePEc:nbr:nberwo:13072

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  1. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 663-98, August.
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  7. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments, The Field Experiments Website 00091, The Field Experiments Website.
  8. David Lucking-Reiley & John A. List, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 961-972, September.
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  12. Sarah Lichtenstein & Paul Slovic, 1973. "Response-induced reversals of preference in gambling: An extended replication in las vegas," Framed Field Experiments, The Field Experiments Website 00169, The Field Experiments Website.
  13. Harrison, Glenn W, 1990. "Risk Attitudes in First-Price Auction Experiments: A Bayesian Analysis," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 541-46, August.
  14. Peter Bohm & Hans Lind, 1993. "Preference reversal, real-world lotteries, and lottery-interested subjects," Framed Field Experiments, The Field Experiments Website 00131, The Field Experiments Website.
  15. Laskowski, Michael C. & Slonim, Robert L., 1999. "An Asymptotic Solution for Sealed Bid Common-Value Auctions with Bidders Having Asymmetric Information," Games and Economic Behavior, Elsevier, Elsevier, vol. 28(2), pages 238-255, August.
  16. John List, 2001. "Do explicit warnings eliminate the hypothetical bias in elicitation procedures? Evidence from field auctions for sportscards," Framed Field Experiments, The Field Experiments Website 00163, The Field Experiments Website.
  17. John H. Kagel & Dan Levin, 1999. "Common Value Auctions with Insider Information," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1219-1238, September.
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Citations

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Cited by:
  1. Arthur Zillante, 2005. "Survival in a Declining Industry: The Case of Baseball Cards," Industrial Organization, EconWPA 0505004, EconWPA.
  2. Brice Corgnet & Roberto Hernán-González & Stephen Rassenti, 2011. "Real Effort, Real Leisure and Real-time Supervision: Incentives and Peer Pressure in Virtual Organizations," Working Papers, Chapman University, Economic Science Institute 11-05, Chapman University, Economic Science Institute.
  3. Vivi Alatas & Lisa Cameron & Ananish Chaudhuri & Nisvan Erkal & Lata Gangadharan, 2009. "Subject pool effects in a corruption experiment: A comparison of Indonesian public servants and Indonesian students," Experimental Economics, Springer, Springer, vol. 12(1), pages 113-132, March.
  4. Jan Hanousek & Evzen Kocenda, 2005. "Learning by Bidding: Evidence from a Large-Scale Natural Experiment," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp247, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  5. Marco Francesconi & Mich�le Belot, 2011. "Dating Preferences and Meeting Opportunities in Mate Choice Decisions," Economics Discussion Papers, University of Essex, Department of Economics 702, University of Essex, Department of Economics.
  6. Lacetera, Nicola & Macis, Mario, 2008. "Motivating Altruism: A Field Study," IZA Discussion Papers 3770, Institute for the Study of Labor (IZA).
  7. Fiore, Stephen M. & Harrison, Glenn W. & Hughes, Charles E. & Rutstrm, E. Elisabet, 2009. "Virtual experiments and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 65-86, January.
  8. François Cochard & Anne Rozan, 2010. "Taxe ambiante : un outil adapté à la lutte contre les coulées de boue ? Une étude expérimentale," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, INRA Department of Economics, vol. 91(3), pages 296-326.
  9. John Dickhaut & Radhika Lunawat & Kira Pronin & Jack Stecher, 2011. "Decision making and trade without probabilities," Economic Theory, Springer, Springer, vol. 48(2), pages 275-288, October.
  10. Steven D. Levitt & John A. List & David H. Reiley, Jr., 2009. "What Happens in the Field Stays in the Field: Exploring Whether Professionals Play Minimax in Laboratory Experiments," NBER Working Papers 15609, National Bureau of Economic Research, Inc.
  11. Cunningham, Thomas, 2013. "Biases and Implicit Knowledge," MPRA Paper 50292, University Library of Munich, Germany.
  12. Steven Levitt & John List & David Reiley, 2010. "What happens in the field stays in the field: Professionals do not play minimax in laboratory experiments," Artefactual Field Experiments, The Field Experiments Website 00080, The Field Experiments Website.
  13. Omar Al-Ubaydli & Peter Boettke, 2012. "Markets as economizers of information: Field experimental examination of the 'hayek hypothesis'," Framed Field Experiments, The Field Experiments Website 00195, The Field Experiments Website.
  14. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments, The Field Experiments Website 00091, The Field Experiments Website.
  15. Belot, Michèle & Francesconi, Marco, 2007. "Can anyone be 'the' one? Field evidence on dating behavior," ISER Working Paper Series 2007-17, Institute for Social and Economic Research.

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