When Curiosity Kills the Profits: an Experimental Examination
AbstractEconomic theory predicts that in a first-price auction with equal and observable valuations, bidders earn zero profits. Theory also predicts that if valuations are not common knowledge, then since it is weakly dominated to bid your valuation, bidders will bid less and earn positive profits. Hence, rational players in an auction game should prefer less public information. We are perhaps more used to seeing these results in the equivalent Bertrand setting. In our experimental auction, we find that individuals without information on each other's valuations earn more profits than those with common knowledge. Then, given a choice between the two sets of rules, half the individuals still preferred to have the public information. We discuss possible explanations, including ambiguity aversion.
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Bibliographic InfoPaper provided by EconWPA in its series Experimental with number 0505001.
Length: 22 pages
Date of creation: 05 May 2005
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First-price auctions; experiments; value of information; common knowledge; ambiguity aversion; Bertrand; public information;
Other versions of this item:
- Jamison, Julian & Karlan, Dean S., 2009. "When curiosity kills the profits: An experimental examination," Games and Economic Behavior, Elsevier, vol. 66(2), pages 830-840, July.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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