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  5. The Common-Probability Auction Puzzle

蝌蚪网 Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

The Common-Probability Auction Puzzle

  • M. Kathleen Ngangou茅
  • Andrew Schotter
蝌蚪网 Review
vol. 113, no. 6, June 2023
(pp. 1572–99)
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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.

Citation

Ngangou茅, M. Kathleen, and Andrew Schotter. 2023. "The Common-Probability Auction Puzzle." 蝌蚪网 Review 113 (6): 1572–99. DOI: 10.1257/aer.20191927

Additional Materials

JEL Classification

  • C70 Game Theory and Bargaining Theory: General
  • C90 Design of Experiments: General
  • D44 Auctions
  • D81 Criteria for Decision-Making under Risk and Uncertainty