Affiliation:
1. UCLA Anderson (email: )
2. New York University (email: )
Abstract
This paper presents a puzzle in the behavior of experimental subjects in what we call common-probability auctions. In common-value auctions, uncertainty is defined over values, while in common-probability auctions, uncertainty is defined over probabilities. We find that in contrast to the substantial overbidding found in common-value auctions, bidding in strategically equivalent common-probability auctions is consistent with Nash equilibrium. To explain our results, we run treatments to identify whether this difference stems from the way subjects estimate the good’s value in a competitive environment rather than the way they bid conditional on these valuations. We conclude it is the former. (JEL C70, C90, D44, D81)
Publisher
American Economic Association
Subject
Economics and Econometrics