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Ranking alternatives by a fair bidding rule: a theoretical and experimental analysis

  • Werner Güth

    ()

    (Max Planck Institute of Economics, Strategic Interaction Group)

  • M. Vittoria Levati

    ()

    (Max Planck Institute of Economics, Jena, Germany, and Department of Economics, University of Verona, Verona, Italy)

  • Natalia Montinari

    (Max Planck Institute of Economics, Jena, Germany)

We introduce a procedurally fair rule to study a situation where people disagree about the value of three alternatives in the way captured by the voting paradox. The rule allows people to select a final collective ranking by submitting a bid vector with six components (the six possible rankings of the three alternatives). In a laboratory experiment we test the robustness of the rule to the introduction of subsidies and taxes. We have two main results. First, in all treatments, the most frequently chosen ranking is the socially efficient one. Second, subsidies slightly enhance overbidding. Furthermore, an analysis of individual bid vectors reveals interesting behavioral regularities.

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Paper provided by Friedrich-Schiller-University Jena in its series Jena Economic Research Papers with number 2012-005.

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Date of creation: 20 Feb 2012
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Handle: RePEc:jrp:jrpwrp:2012-005
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  1. Alessandra Casella & Thomas Palfrey & Raymond Riezman, 2005. "Minorities and Storable Votes," CESifo Working Paper Series 1583, CESifo Group Munich.
  2. Thomas Romer & Howard Rosenthal, 1979. "Bureaucrats Versus Voters: On the Political Economy of Resource Allocation by Direct Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 563-587.
  3. Alessandra Casella, 2002. "Storable Votes," NBER Working Papers 9189, National Bureau of Economic Research, Inc.
  4. Agnes Pinter & Robert F. Veszteg, 2008. "Minority vs. Majority: An Experimental Study of Standardized Bids," ISER Discussion Paper 0708, Institute of Social and Economic Research, Osaka University.
  5. Casella, Alessandra & Gelman, Andrew & Palfrey, Thomas R., 2003. "An Experimental Study of Storable Votes," Working Papers 1173, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  7. Smith, Vernon L, 1977. "The Principle of Unanimity and Voluntary Consent in Social Choice," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1125-39, December.
  8. David Pérez-Castrillo & David Wettstein, 2002. "Choosing Wisely: A Multibidding Approach," American Economic Review, American Economic Association, vol. 92(5), pages 1577-1587, December.
  9. Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Kelly, Jerry S., 1974. "Necessity conditions in voting theory," Journal of Economic Theory, Elsevier, vol. 8(2), pages 149-160, June.
  11. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2012. "Public projects benefiting some and harming others: three experimental studies," Jena Economic Research Papers 2012-034, Friedrich-Schiller-University Jena.
  12. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati, 2011. ""One man's meat is another man's poison." An experimental study of voluntarily providing public projects that raise mixed feelings," Jena Economic Research Papers 2011-034, Friedrich-Schiller-University Jena.
  13. Simona Cicognani & Anna D’Ambrosio & Werner Güth & Simone Pfuderer & Matteo Ploner, 2015. "Community projects: an experimental analysis of a fair implementation process," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(1), pages 109-132, January.
  14. Kelly, Jerry S, 1974. "Voting Anomalies, the Number of Voters, and the Number of Alternatives," Econometrica, Econometric Society, vol. 42(2), pages 239-51, March.
  15. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  16. Werner Güth & Hartmut Kliemt, 2011. "Procedurally Fair Provision of Public Projects An axiomatic characterization," Jena Economic Research Papers 2011-016, Friedrich-Schiller-University Jena.
  17. Lehtinen, Aki, 2008. "The welfare consequences of strategic behaviour under approval and plurality voting," European Journal of Political Economy, Elsevier, vol. 24(3), pages 688-704, September.
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