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Bidding with money or action plans? Asset allocation under strategic uncertainty

Author

Listed:
  • Katerina Sherstyuk

    (University of Hawaii)

  • Nina Karmanskaya

    (Novosibirsk State Technical University)

  • Pavel Teslia

    (Novosibirsk State Technical University)

Abstract

We study, theoretically and experimentally, alternative mechanisms to allocate assets when the future value of the asset is unknown at the time of allocation because of strategic uncertainty. We compare auctions, or bidding with money, for the right to play the minimum effort coordination game, with bidding with action (effort) proposals, where bidders with the highest proposed actions are selected as winners. Provided that the bidders commit to their proposals, bidding with action proposals eliminates strategic uncertainly and is characterized by the unique fully efficient Nash equilibrium. Allowing to revise action proposals after the assets are allocated admits both informative fully efficient, and uninformative babbling equilibria. In the experiment, bidding with action proposals with commitment consistently leads to the efficient outcome, whereas without commitment, both fully efficient and inefficient outcomes are observed. Auctioning off the right to play leads to higher actions than under random allocation, but is characterized by significant overbidding and winner losses. We further experimentally compare the mechanisms in their ability to train the players to achieve and sustain efficient coordination even after the allocation mechanism changes.

Suggested Citation

  • Katerina Sherstyuk & Nina Karmanskaya & Pavel Teslia, 2016. "Bidding with money or action plans? Asset allocation under strategic uncertainty," Working Papers 201603, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201603
    as

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_16-03.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    economic experiments; minimum effort coordination game; selection mechanisms;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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