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Bidding in common value auctions: How the commercial construction industry corrects for the winner's curse

  • Douglas Dyer
  • John Kagel

Experienced construction industry executives suffer from a winner's curse in laboratory common value auction markets (Dyer et al. [Dyer, D., J. H. Kagel, D. Levin. 1989. A comparison of naive and experienced bidders in common value offer auctions: Laboratory analysis. Econom. J. 99 108-115.]). This paper identifies essential differences between field environments and the economic theory underlying the laboratory markets that account for the executives' success in the field and a winner's curse in the lab. These are (1) industry-specific mechanisms which enable contractors to escape the winner's curse even when they bid too low, (2) learned, industry-specific evaluative processes which enable experienced contractors to avoid the winner's curse in the first place, and (3) important private value elements that underlie bidding. Also identified are a number of industry-specific bidding characteristics whose evolution can be explained using modern auction theory. Lessons are drawn regarding the use of experimental methods in economics.

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Paper provided by The Field Experiments Website in its series Framed Field Experiments with number 00144.

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Date of creation: 1996
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Handle: RePEc:feb:framed:00144
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