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Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study
Author(s) -
Ivanov Asen,
Levin Dan,
Niederle Muriel
Publication year - 2010
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta8112
Subject(s) - winner's curse , curse , value (mathematics) , relaxation (psychology) , psychology , economics , social psychology , mathematical economics , cognitive psychology , microeconomics , mathematics , common value auction , statistics , philosophy , theology
We use a second‐price common‐value auction, called the maximal game , to experimentally study whether the winner's curse (WC) can be explained by models which retain best‐response behavior but allow for inconsistent beliefs. We compare behavior in a regular version of the maximal game, where the WC can be explained by inconsistent beliefs, to behavior in versions where such explanations are less plausible. We find little evidence of differences in behavior. Overall, our study casts a serious doubt on theories that posit the WC is driven by beliefs.