Bidding Behaviour in Second-Price and Random Nth-Price Auctions with Interval Private Values PDF Download
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Author: Prasenjit Banerjee
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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When valuing market and non-market goods, using point estimates of willingness to pay (WTP) may generate biased results because people are often observed to have a range of acceptable values in mind. We investigate how individuals express their bids or WTP given uniform and skewed intervals of private values in the lab with two demand-revealing auction mechanisms -- a second-price auction and a random nth-price auction. The participants are allowed to bid in intervals. Since our participants face the risks of losing the auction and/or money due to uncertainties over private values and market price, we explore the effect of risk preferences on bidding behaviour. We find that (i) participants mostly bid in intervals; (ii) risk-averse participants prefer to bid in point estimates across the auction types; (iii) participants bid truthfully in the second-price auction given skewed interval values; (iv) the random nth-price auction, however, performs better than the second-price auction in extracting the true values given uniform interval values and left-skewed interval values, when we divide the skewed intervals into left- and right-skewed intervals; and (v) the mean of interval bids can be used to derive the demand for true WTP for a good with value uncertainty. We also find that risk-loving individuals overbid significantly, but risk preferences do not affect overall bidding behaviour.
Author: Prasenjit Banerjee
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
When valuing market and non-market goods, using point estimates of willingness to pay (WTP) may generate biased results because people are often observed to have a range of acceptable values in mind. We investigate how individuals express their bids or WTP given uniform and skewed intervals of private values in the lab with two demand-revealing auction mechanisms -- a second-price auction and a random nth-price auction. The participants are allowed to bid in intervals. Since our participants face the risks of losing the auction and/or money due to uncertainties over private values and market price, we explore the effect of risk preferences on bidding behaviour. We find that (i) participants mostly bid in intervals; (ii) risk-averse participants prefer to bid in point estimates across the auction types; (iii) participants bid truthfully in the second-price auction given skewed interval values; (iv) the random nth-price auction, however, performs better than the second-price auction in extracting the true values given uniform interval values and left-skewed interval values, when we divide the skewed intervals into left- and right-skewed intervals; and (v) the mean of interval bids can be used to derive the demand for true WTP for a good with value uncertainty. We also find that risk-loving individuals overbid significantly, but risk preferences do not affect overall bidding behaviour.
Author: Prasenjit Banerjee
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: David J. Cooper
Publisher:
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Category :
Languages : en
Pages : 0
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This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about opponents' value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the "strength" (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by "spite" motives or by the "joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modified "joy of winning" hypothesis than with the "spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also find that bidder heterogeneity plays an important role in explaining their bidding behavior.
Author: John H. Kagel
Publisher: Princeton University Press
ISBN: 0691218951
Category : Business & Economics
Languages : en
Pages : 419
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Book Description
An invaluable account of how auctions workâand how to make them work Few forms of market exchange intrigue economists as do auctions, whose theoretical and practical implications are enormous. John Kagel and Dan Levin, complementing their own distinguished research with papers written with other specialists, provide a new focus on common value auctions and the "winner's curse." In such auctions the value of each item is about the same to all bidders, but different bidders have different information about the underlying value. Virtually all auctions have a common value element; among the burgeoning modern-day examples are those organized by Internet companies such as eBay. Winners end up cursing when they realize that they won because their estimates were overly optimistic, which led them to bid too much and lose money as a result. The authors first unveil a fresh survey of experimental data on the winner's curse. Melding theory with the econometric analysis of field data, they assess the design of government auctions, such as the spectrum rights (air wave) auctions that continue to be conducted around the world. The remaining chapters gauge the impact on sellers' revenue of the type of auction used and of inside information, show how bidders learn to avoid the winner's curse, and present comparisons of sophisticated bidders with college sophomores, the usual guinea pigs used in laboratory experiments. Appendixes refine theoretical arguments and, in some cases, present entirely new data. This book is an invaluable, impeccably up-to-date resource on how auctions work--and how to make them work.
Author: Sudip Gupta
Publisher:
ISBN:
Category :
Languages : en
Pages : 148
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Author: Youxin Hu
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 104
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Abstract: Standard literature on auctions considers isolated markets with bidders that are ex ante identical and independent. My dissertation research considers the behavior of bidders and sellers when they take into account other auctions and bidders' relative roles outside of a given auction. I further extend this investigation through classroom experiments. In the first chapter, I study bidders' optimal strategies under negative externalities (i.e., the auction may incur losses (instead of zero payoffs) to the losing bidders). I construct a model of auction with three bidders. One bidder is special in the sense that if he wins, both of the other bidders will incur a loss; the other two bidders are regular in the sense that as in a traditional auction, if one of them wins, the losing bidders will receive zero payoffs. Intuitively one expects regular bidders to bid more aggressively than normal to avoid the loss. However, I find that in an ascending clock auction, in equilibrium regular bidders bid less aggressively and quit before reaching their private values. This occurs because a regular bidder may have to bid above his value in order to win against the special bidder and thus risks negative profit by bidding aggressively. Since both regular bidders avoid the externality if either wins, there is a free riding incentive. Despite free riding, in most cases the clock auction is ex post efficient However, in first-price sealed bid auctions free riding and aggressive bidding incentives are simultaneous, so ex post efficiency is less frequent. I also conducted classroom experiments which suggest that bidders more often exhibit aggressive bidding rather than free riding in an ascending clock auction; furthermore, I show that in first-price sealed bid auctions, regular bidders bid more aggressively than the special bidder, indicating aggressive bidding incentives dominate free riding incentives. In the second chapter, I construct an auction model in which both number of bidders and sellers' reserve prices are endogenously determined, and estimate the value distribution among eBay bidders. I assume each bidder has a choice of auctions with different reserve prices and other auction specific factors (seller's reputation, shipping cost, auction duration, etc.). I show that in equilibrium, 1) each bidder must be indifferent to entry in any auction, and 2) each seller's reserve price must maximize expected revenue given auction structure and bidder entry behavior, which jointly determines the equilibrium number of bidders in each auction. Few theoretical works have been done to find the positive optimal reserve price when the number of bidder is endogenous. And previous empirical work usually uses observed bids to estimate bidders' value distribution and take sellers' choice (e.g., reserve prices) as exogenous. Based on the equilibrium relationship described above, my model allows estimation of bidders' value distribution not only from observed bids, but also from the number of bidders and reserve prices. To apply this structural estimation method, I use eBay digital camera auction data to estimate bidders' value distribution from bid observations and reserve prices.
Author: Soo Hong Chew
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Author: John A. List
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Examining panel data on bidding behavior in over forty second-price auction markets with repeated trials, we observe that (i) posted prices influence the behavior of the median naive bidder; (ii) posted prices do not affect the behavior of the median experienced bidder or the bidder for familiar goods; and (iii) anticipated strategic behavior wanes after two trials. The results suggest that while affiliation might exist in auctions for new goods, the repeated trial design with nonprice information removes the correlation of values and provides the experience that bidders need to understand the market mechanism.
Author: Andreas Lange
Publisher:
ISBN:
Category : Auctions
Languages : en
Pages : 59
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Book Description
Auction theory is one of the richest areas of research in economics over the past three decades. Yet whether and to what extent the introduction of secondary resale markets influences bidding behavior in sealed bid first-price auctions remains under researched. This study begins by developing theory to explore auctions with resale when private values are uncertain. We put our theory to the test by examining both field data and experimental data from the lab. Our field data are from a unique data set that includes nearly 3,000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996-2000. In comparing bidding patterns across agents who are likely to have resale opportunities with those who likely do not, we find evidence that is consistent with our theoretical predictions. Critical evaluation of the reduced-form bidding model, however, reveals that sharp tests of the theoretical predictions are not possible because several other differences may exist across these bidder types. We therefore use a laboratory experiment to examine if the resale opportunity by itself can have the predicted effect. We find that while it does have the predicted effect, a theoretical model based on risk-averse bidders explains the overall data patterns more accurately than a model based on risk-neutral bidders. More generally, the paper highlights the inferential power of combining naturally occurring data with laboratory data.
Author: Timothy Mathews
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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A single item is sold to two bidders by way of a sealed bid second price auction in which bids are restricted to a set of discrete values. Restricting attention to symmetric pure strategy behavior on the part of bidders, a unique equilibrium exists. When following these equilibrium strategies bidders may bid strictly above or below their valuation, implying that the item may be awarded to a bidder other than the high valuation bidder. In an auction with two acceptable bids, the expected revenue of the seller may be maximized by a high bid level not equal to the highest possible bidder valuation and may exceed the expected revenue from an analogous second price auction with continuous bidding (and no reserve price). With three acceptable bids, a revenue maximizing seller may choose unevenly spaced bids. With an arbitrary number of evenly spaced bids, as the number of acceptable bids is increased, the expected revenue of the seller and the probability of ex post inefficiency both may either increase or decrease.
