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Successful uninformed bidding

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  • Hernando-Veciana, Angel

Abstract

This paper provides some striking results that arise in the unique symmetric equilibrium of common value multiunit auction in which some bidders are better informed than others. We show that bidders with worse information can do surprisingly well: They can win with higher probability than better informed bidders, and sometimes, even with higher expected utility. We also find a positive relationship between the success of worse informed bidders and the number of units for sale. Finally we argue that the correct intuitive explanation of these results relies on the balance of the winner's curse and the loser's curse effects.
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Suggested Citation

  • Hernando-Veciana, Angel, 2004. "Successful uninformed bidding," Games and Economic Behavior, Elsevier, vol. 48(1), pages 29-53, July.
  • Handle: RePEc:eee:gamebe:v:48:y:2004:i:1:p:29-53
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    References listed on IDEAS

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    1. Harstad, Ronald M., 1991. "Asymmetric bidding in second-price, common-value auctions," Economics Letters, Elsevier, vol. 35(3), pages 249-252, March.
    2. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1997. "The Loser's Curse and Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 65(6), pages 1247-1282, November.
    3. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
    4. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-943, June.
    5. Arupratan Daripa, 1996. "Multi-Unit Auctions Under Proprietary Information: Information Free Rides and Revenue Banking," Archive Working Papers 015, Birkbeck, Department of Economics, Mathematics & Statistics.
    6. Holt, Charles A & Sherman, Roger, 1994. "The Loser's Curse," American Economic Review, American Economic Association, vol. 84(3), pages 642-652, June.
    7. Milgrom, Paul & Weber, Robert J., 1982. "The value of information in a sealed-bid auction," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 105-114, June.
    8. Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
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    Cited by:

    1. Jan Boone & JacobK. Goeree, 2009. "Optimal Privatisation Using Qualifying Auctions," Economic Journal, Royal Economic Society, vol. 119(534), pages 277-297, January.
    2. Hernando-Veciana, Ángel, 2009. "Information acquisition in auctions: Sealed bids vs. open bids," Games and Economic Behavior, Elsevier, vol. 65(2), pages 372-405, March.
    3. Arup Daripa, 2005. "Informational Free Rides in Uniform Price Auctions: Exception or Norm?," Birkbeck Working Papers in Economics and Finance 0521, Birkbeck, Department of Economics, Mathematics & Statistics.
    4. Larson, Nathan, 2009. "Private value perturbations and informational advantage in common value auctions," Games and Economic Behavior, Elsevier, vol. 65(2), pages 430-460, March.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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