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Theory And Misbehavior Of First-Price Auctions: The Importance Of Information Feedback In Experimental Markets

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Author Info
Tibor Neugebauer (University Hannover)
Javier Perote (Juan Carlos University Madrid)

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Abstract

This article reports the results of a market experiment designed to test the predictions of the constant relative risk aversion model and to study the importance of information feedback in repeated first-price sealed-bid auctions. The data reveal that introduction of price information feedback implies a significant change of individual behavior. Without price information feedback, the data support the risk neutral Nash equilibrium prediction; with price information feedback, on the other hand, subjects overbid the risk neutral Nash equilibrium significantly. The constant relative risk aversion model is rejected since it predicts overbidding for both feedback conditions.

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File URL: http://129.3.20.41/eps/exp/papers/0503/0503008.pdf
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Publisher Info
Paper provided by EconWPA in its series Experimental with number 0503008.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 25 pages
Date of creation: 25 Mar 2005
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Handle: RePEc:wpa:wuwpex:0503008

Note: Type of Document - pdf; pages: 25
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Web page: http://129.3.20.41

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Related research
Keywords: Experimental Economics; First-price Sealed-bid Auctions; Independent Private Value Model; Bidding Theory; Risk Aversion;

Other versions of this item:

Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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References listed on IDEAS
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  6. Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000. "Quantal Response Equilibrium and Overbidding in Private-value Auctions," Working Papers 1073, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  7. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
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    Other versions:
  9. Harrison, Glenn W, 1992. "Theory and Misbehavior of First-Price Auctions: Reply," American Economic Review, American Economic Association, vol. 82(5), pages 1426-43, December. [Downloadable!] (restricted)
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  13. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics. [Downloadable!]
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