Theodore L.
Turocy and Elizabeth
Watson
Department of Economics
Texas A&M University
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We show that bidding behavior in laboratory first-price
private-values auctions is sensitive to the way the outcomes of the
auction are presented. We embed the auction in a context in which each
sub ject purchases an ob ject each period. A bidder’s
idiosyncratic reservation value is the price at which he will purchase
a close substitute outside the auction market in the event he does not
win the auction. A subject’s earnings for a period are computed
as his total consumer surplus. This modification makes salient the
price-probability tradeoff bidders face, which plays a central role in
both theoretical and empirical work. Using this design, we find seller
revenue to be significantly lower than has been consistently reported
in the literature, even though the risk-neutral Bayes-Nash equilibrium
remains unchanged.
Current version dated July 13, 2007. Available in: [pdf].
Full subject-level data for the sessions reported in the paper are available in [.csv format].
Screenshots of the subject instructions are available in ZIP files: [RV frame, sealed-bid] [RV frame, Dutch] [OP frame, sealed-bid] [OP frame, Dutch]
Note that the RV frame instructions and data are identical to cohorts labeled a in "Framing the First-Price Auction."