Bimodal Bidding in Experimental All-Pay Auctions

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Bimodal Bidding in Experimental All-Pay Auctions

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Christiane Ernst ()
Christian Thöni ()

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Christian Thöni

Abstract

We report results from experimental first-price, sealed-bid, all-pay auctions for a good with a common and known value. We observe bidding strategies in groups of two and three bidders and under two extreme information conditions. As predicted by the Nash equilibrium, subjects use mixed strategies. In contrast to the prediction under standard assumptions bids are drawn from a bimodal distribution: very high and very low bids are much more frequent than intermediate bids. Standard risk preferences cannot account for our results. However, bidding behavior is consistent with the predictions of a model with reference dependent preferences as proposed by the prospect theory.

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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2009 with number 2009-25.

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Length: 20 pages
Date of creation: Aug 2009
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Handle: RePEc:usg:dp2009:2009-25

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-09-05 (All new papers)
NEP-CBE-2009-09-05 (Cognitive & Behavioural Economics)
NEP-EXP-2009-09-05 (Experimental Economics)
NEP-GTH-2009-09-05 (Game Theory)
NEP-MIC-2009-09-05 (Microeconomics)
NEP-UPT-2009-09-05 (Utility Models & Prospect Theory)

References listed on IDEAS
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