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Individual Behavior And Bidding Heterogeneity In Sealed Bid Auctions Where The Number Of Bidders Is Unknown

  • MARK ISAAC
  • SVETLANA PEVNITSKAYA
  • KURT S. SCHNIER

This paper analyzes individual bidding data from a series of first price (FP) and second price (SP) sealed-bid auctions in which the number of bidders is unknown. In SP auctions we find a substantial amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in FP auctions and show theoretically that these deviations are consistent with risk averse preferences. We find essentially no heterogeneity in bidding in SP auctions where risk preferences and the number of bidders do not affect the optimal bid, while in the FP auctions heterogeneity in bidding persists and increases with experience. We conclude that heterogeneity in bidding in FP auctions is consistent with heterogeneity in risk preferences, the attempt to count the number of bidders in the auction, and bidder specific noise. (JEL D44, C91)

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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2011.00393.x
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 50 (2012)
Issue (Month): 2 (04)
Pages: 516-533

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Handle: RePEc:bla:ecinqu:v:50:y:2012:i:2:p:516-533
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  1. El-Gamal, Mahmoud A. & Grether, David M., 1995. "Are People Bayesian? Uncovering Behavioral Strategies," Working Papers 919, California Institute of Technology, Division of the Humanities and Social Sciences.
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  9. Douglas Dyer & John H. Kagel & Dan Levin, 1989. "Resolving Uncertainty about the Number of Bidders in Independent Private-Value Auctions: An Experimental Analysis," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 268-279, Summer.
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