Working Paper: NBER ID: w13072
Authors: Glenn W. Harrison; John A. List
Abstract: There has been a dramatic increase in the use of experimental methods in the past two decades. An oft-cited reason for this rise in popularity is that experimental methods provide the necessary control to estimate treatment effects in isolation of other confounding factors. We examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain. Using common value auction theory as our guide, we identify naturally occurring settings in which one can test the theory. In our treatments the subjects are not picked at random, as in lab experiments with student subjects, but are deliberately identified by their trading roles in the natural field setting. We find that experienced agents bidding in familiar roles do not fall prey to the winner's curse. Yet, when experienced agents are observed bidding in an unfamiliar role, we find that they frequently fall prey to the winner's curse. We conclude that the theory predicts field behavior well when one is able to identify naturally occurring field counterparts to the key theoretical conditions.
Keywords: Winners Curse; Auction Theory; Experimental Economics
JEL Codes: C90; C91; C93; D02; D44; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Experience (C99) | Avoiding Winners Curse (D44) |
| Unfamiliar Roles (Y92) | Winners Curse (D44) |
| Type of Bidder (D44) | Likelihood of Winners Curse (D44) |
| Market Context (D49) | Bidding Behavior (D44) |