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The veil of experimental currency units in second price auctions

Author

Listed:
  • Andreas C. Drichoutis

    (Agricultural University of Athens)

  • Jayson L. Lusk

    (Oklahoma State University)

  • Rodolfo M. Nayga

    (University of Arkansas
    Korea University
    Norwegian Institute of Bioeconomy Research)

Abstract

Economic experiments often entail subjects making decisions with payoffs in experimental currency units (ECUs). Earnings in ECUs are converted to cash at the end of the experiment. Such a procedural choice seems to be driven more by habit or tradition than by empirical evidence that this is more appropriate to use. We report results of a private, induced value second price auction (SPA) experiment in which we manipulate the exchange rate between ECUs and cash. We find virtually no relationship between a stronger/weaker experimental currency and the ability of theory to predict observed outcomes. The only significant effect relates to the comparison of the cash-only condition to the one-to-one exchange condition. The latter produced greater behavioral deviations from theoretical predictions. However, we find that this effect is largely driven by a handful of subjects. The results suggest that the use of ECUs is not a hindrance for experimental practice, at least not in the context of an induced value SPA.

Suggested Citation

  • Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga, 2015. "The veil of experimental currency units in second price auctions," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(2), pages 182-196, December.
    • Handle: RePEc:spr:jesaex:v:1:y:2015:i:2:d:10.1007_s40881-015-0014-2
    DOI: 10.1007/s40881-015-0014-2
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    Cited by:

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    2. Ji Yong Lee & Rodolfo M. Nayga & Cary Deck & Andreas C. Drichoutis, 2020. "Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1494-1510, October.
    3. Kathryn N. Vasilaky & J. Michelle Brock, 2020. "Power(ful) guidelines for experimental economists," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 6(2), pages 189-212, December.
    4. Lohse, Tim & Qari, Salmai, 2021. "Gender differences in face-to-face deceptive behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 1-15.
    5. Voslinsky, Alisa & Azar, Ofer H., 2021. "Incentives in experimental economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 93(C).
    6. Alessio Gaggero & Simon Appleton & Lina Song, 2018. "Framing effects on bribery behaviour: experimental evidence from China and Uganda," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 4(1), pages 86-97, July.
    7. Tristan Roger & Wael Bousselmi & Patrick Roger & Marc Willinger, 2018. "Another law of small numbers: patterns of trading prices in experimental markets," CEE-M Working Papers hal-01954921, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    8. repec:cup:judgdm:v:15:y:2020:i:1:p:82-92 is not listed on IDEAS
    9. Lea Cassar, 2019. "Job Mission as a Substitute for Monetary Incentives: Benefits and Limits," Management Science, INFORMS, vol. 65(2), pages 896-912, February.
    10. Itzhak Rasooly & Carlos Gavidia-Calderon, 2020. "The importance of being discrete: on the inaccuracy of continuous approximations in auction theory," Papers 2006.03016, arXiv.org, revised Aug 2022.
    11. Zhaoyang Liu & Jintao Xu & Xiaojun Yang & Qin Tu & Nick Hanley & Andreas Kontoleon, 2019. "Performance of Agglomeration Bonuses in Conservation Auctions: Lessons from a Framed Field Experiment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(3), pages 843-869, July.
    12. Maurizio Canavari & Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga, Jr., 2018. "How to run an experimental auction: A review of recent advances," Working Papers 2018-5, Agricultural University of Athens, Department Of Agricultural Economics.
    13. Lee, Ji Yong & Nayga, Rodolfo M. & Deck, Cary & Drichoutis, Andreas, 2017. "Cognitive Ability and Bidding Behavior in Experimental Auction," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258347, Agricultural and Applied Economics Association.
    14. Yu-Chin Hsiao & Simon Kemp, 2020. "The effect of incentive structure on search in the secretary problem," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 15(1), pages 82-92, January.

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    More about this item

    Keywords

    Experimental currency units; ECU; Tokens; Vickrey auction; Induced values;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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