Working Paper: CEPR ID: DP10377
Authors: Isabelle Brocas; Juan D. Carrillo; Manuel Castro
Abstract: We conduct a laboratory experiment of second-price sealed bid auctions of a common value good with two bidders. Bidders face three different types of information: common uncertainty (unknown information), private information (known by one bidder) and public information (known by both bidders), and auctions differ on the relative importance of these three types of information. We find that subjects differentiate insufficiently between private and public information and deviate from the theoretical predictions with respect to all three types of information. There is under-reaction to both private and public information and systematic overbidding in all auctions above and beyond the standard winner's curse. The Cursed Equilibrium and Level-k models successfully account for some features of the data but others remain unexplained.
Keywords: Cursed Equilibrium; Laboratory Experiments; Level-k; Second Price; Common Value Auctions; Winners Curse
JEL Codes: C92; D44; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cursed equilibrium model (D59) | overbidding (D44) |
| level-k model (C51) | overbidding (D44) |
| type of information (D83) | bidding behavior (D44) |
| private information (D82) | overbidding (D44) |
| public information (L39) | overbidding (D44) |
| common uncertainty (D80) | overbidding (D44) |
| bidding behavior (D44) | deviation from Nash equilibrium (C72) |
| individual differences (L15) | heterogeneity in bids (D44) |