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When Curiosity Kills the Profits: an Experimental Examination

  • Julian Jamison

    (University of California, Berkeley & San Francisco)

  • Dean S. Karlan

    (Princeton University)

Economic theory predicts that in a first-price auction with equal and observable valuations, bidders earn zero profits. Theory also predicts that if valuations are not common knowledge, then since it is weakly dominated to bid your valuation, bidders will bid less and earn positive profits. Hence, rational players in an auction game should prefer less public information. We are perhaps more used to seeing these results in the equivalent Bertrand setting. In our experimental auction, we find that individuals without information on each other's valuations earn more profits than those with common knowledge. Then, given a choice between the two sets of rules, half the individuals still preferred to have the public information. We discuss possible explanations, including ambiguity aversion.

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Paper provided by EconWPA in its series Experimental with number 0505001.

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Length: 22 pages
Date of creation: 05 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpex:0505001
Note: Type of Document - pdf; pages: 22
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  1. Lisa Cameron, 1995. "Raising the Stakes in the Ultimatum Game: Experimental Evidence From Indonesia," Working Papers 724, Princeton University, Department of Economics, Industrial Relations Section..
  2. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
  3. Blank, Rebecca M, 1991. "The Effects of Double-Blind versus Single-Blind Reviewing: Experimental Evidence from The American Economic Review," American Economic Review, American Economic Association, vol. 81(5), pages 1041-67, December.
  4. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
  5. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
  7. Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
  8. John H. Kagel & Colin M. Campbell & Dan Levin, 1999. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 89(1), pages 325-334, March.
  9. Yan Chen & Peter Katuscak & Emre Ozdenoren, 2005. "Sealed Bid Auctions with Ambiguity: An Experimental Study," CERGE-EI Working Papers wp269, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  10. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  11. Ketcham, Jon & Smith, Vernon L & Williams, Arlington W, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 595-614, October.
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