Separating Bayesian Updating from Non-Probabilistic Reasoning: An Experimental Investigation

Through a series of decision tasks involving colored cards, we provide separate measures of Bayesian updating and non-probabilistic reasoning skills. We apply these measures to (and are the first to study) a common-value Dutch auction. This format is more salient than the strategically equivalent first-price auction and silent Dutch formats in hinting that one should condition one's estimate of the value on having the highest bid. Both Bayesian updating skills and non-probabilistic reasoning skills are shown to help subjects correct for the winner's curse, as does the saliency of the active-clock Dutch format. (JEL D12, D44, D83)

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Efficiency in Auctions with Private and Common Values: An Experimental Study

The American Economic Review ◽

10.1257/00028280260136435 ◽

2002 ◽

Vol 92 (3) ◽

pp. 625-643 ◽

Cited By ~ 69

Author(s):

Jacob K Goeree ◽

Theo Offerman

Keyword(s):

Experimental Study ◽

Expected Value ◽

Winner's Curse ◽

Winner’S Curse ◽

The Public ◽

Common Values ◽

Common Value ◽

Price Auction ◽

The Common ◽

Release Of Information

Auctions are generally not efficient when the object's expected value depends on private and common value information. We report a series of first-price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders. While some subjects fall prey to the winner's curse, they weigh their private and common value information in roughly the same manner as rational bidders, with observed efficiencies close to predicted levels. Increased competition and reduced uncertainty about the common value positively affect revenues and efficiency. The public release of information about the common value also raises efficiency, although less than predicted.

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Anomalies: The Winner's Curse

The Journal of Economic Perspectives ◽

10.1257/jep.2.1.191 ◽

1988 ◽

Vol 2 (1) ◽

pp. 191-202 ◽

Cited By ~ 260

Author(s):

Richard H Thaler

Keyword(s):

Field Studies ◽

Risk Averse ◽

Common Phenomenon ◽

Winner's Curse ◽

Winner’S Curse ◽

Empirical Question ◽

Common Value ◽

Winning Bidder ◽

Common Value Auction ◽

Very High

Next time that you find yourself a little short of cash for lunch, try the following experiment in your class. Take a jar and fill it with coins, noting the total value of the coins. Now auction off the jar to your class (offering to pay the winning bidder in bills to control for penny aversion). Chances are very high that the following results will be obtained: (1) the average bid will be significantly less than the value of the coins (bidders are risk averse); (2) the winning bid will exceed the value of the jar. Therefore, you will have money for lunch, and your students will have learned first-hand about the “winner's curse.” The winner's curse cannot occur if all the bidders are rational, so evidence of a winner's curse in market settings would constitute an anomaly. However, acting rationally in a common value auction can be difficult. Solving for the optimal bid is not trivial. Thus, it is an empirical question whether bidders in various contexts get it right or are cursed. I will present some evidence, both from experimental and field studies, suggesting that the winner's curse may be a common phenomenon.

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