Working Paper: NBER ID: w9889
Authors: Patrick Bajari; Ali Hortacsu
Abstract: Recently, economists have developed methods for structural estimation of auction models. Many researchers object to these methods because they find the rationality assumptions used in these models to be implausible. In this paper, we explore whether structural auction models can generate reasonable estimates of bidders' private information. Using bid data from auction experiments, we estimate four alternative structural models of bidding in first-price sealed-bid auctions: 1) risk neutral Bayes-Nash, 2) risk averse Bayes-Nash, 3) a model of learning and 4) a quantal response model of bidding. For each model, we compare the estimated valuations and the valuations assigned to bidders in the experiments. We find that a slight modification of Guerre, Perrigne and Vuong's (2000) procedure for estimating the risk neutral Bayes-Nash model to allow for bidder asymmetries generates quite reasonable estimates of the structural parameters.
Keywords: No keywords provided
JEL Codes: L0; C5; D8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| modification of the estimator for the risk-neutral Bayesian Nash model (C51) | reasonable estimates of structural parameters (C51) |
| estimated distribution of valuations closely aligns with the true distribution of valuations (D39) | better assessment of models' performance (C52) |
| behavioral models such as QRE and learning models (C99) | better structural estimates than traditional rational models (C51) |
| risk-neutral Bayesian Nash equilibrium model performs well (C73) | basis for future applications of structural econometric tools (C51) |