Expectations in first-price auctions
Bids in private value first price auctions consistently deviate from risk neutral symmetric equilibrium bids. It is difficult to explain this deviation with risk aversion. We propose and test two other explanations: (1) Bidders do not form correct expectations. (2) Bidders do not play a best reply against their expectations. We present a novel experimental setup which allows to observe bids and expectations separately. We extensively test the internal validity of this setup. We find that off equilibrium expectations explain, if at all, underbidding. Off equilibrium bids do not seem to be due to wrong expectations but due to deviations from a best reply
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- Cox, James C. & Smith, Vernon L. & Walker, James M., 1983. "Tests of a heterogeneous bidders theory of first price auctions," Economics Letters, Elsevier, vol. 12(3-4), pages 207-212.
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- Werner G¸th & Radosveta Ivanova-Stenzel & Manfred K–nigstein & Martin Strobel, 2003.
"Learning to bid - an experimental study of bid function adjustments in auctions and fair division games,"
Royal Economic Society, vol. 113(487), pages 477-494, 04.
- Güth, Werner & Ivanova, Radosveta & Königstein, Manfred & Strobel, Martin, 1999. "Learning to bid: An experimental study of bid function adjustments in auctions and fair division games," SFB 373 Discussion Papers 1999,70, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Kirchkamp, Oliver & Poen, Eva & Reiß, J. Philipp, 2004. "Bidding with Outside Options," Sonderforschungsbereich 504 Publications 04-21, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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