American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Common-Probability Auction Puzzle
American Economic Review
vol. 113,
no. 6, June 2023
(pp. 1572–99)
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
Ngangoué, M. Kathleen, and Andrew Schotter. 2023. "The Common-Probability Auction Puzzle." American Economic Review, 113 (6): 1572–99. DOI: 10.1257/aer.20191927Additional 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