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Theory And Misbehavior Of First-Price Auctions: The Importance Of Information Feedback In Experimental Markets

Author

Listed:
  • Tibor Neugebauer

    (University Hannover)

  • Javier Perote

    (Juan Carlos University Madrid)

Abstract

This article reports the results of a market experiment designed to test the predictions of the constant relative risk aversion model and to study the importance of information feedback in repeated first-price sealed-bid auctions. The data reveal that introduction of price information feedback implies a significant change of individual behavior. Without price information feedback, the data support the risk neutral Nash equilibrium prediction; with price information feedback, on the other hand, subjects overbid the risk neutral Nash equilibrium significantly. The constant relative risk aversion model is rejected since it predicts overbidding for both feedback conditions.

Suggested Citation

  • Tibor Neugebauer & Javier Perote, 2005. "Theory And Misbehavior Of First-Price Auctions: The Importance Of Information Feedback In Experimental Markets," Experimental 0503008, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpex:0503008
    Note: Type of Document - pdf; pages: 25
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Experimental Economics; First-price Sealed-bid Auctions; Independent Private Value Model; Bidding Theory; Risk Aversion;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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