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Reservation Values and Regret in Laboratory First‐Price Auctions: Context and Bidding Behavior
Author(s) -
Turocy Theodore L.,
Watson Elizabeth
Publication year - 2012
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-78.4.1163
Subject(s) - regret , bidding , common value auction , reservation , context (archaeology) , microeconomics , economics , reservation price , mathematical economics , computer science , geology , computer network , paleontology , machine learning
Recent articles hypothesize that an asymmetry in regret motivates aggressive bidding in laboratory first‐price auctions. Subjects emphasize potential earnings foregone from being outbid. Proposed motivators of this asymmetry include the one‐to‐one relationship in the auction between winning and positive earnings and the ex post knowledge that bidders who do not win the auction know they earned less than the winning bidder. We design a novel implementation of the first‐price auction environment in which these characteristics are not present, while leaving unchanged the expected‐earnings maximizing bidding strategy against any fixed beliefs about the bidding behavior of others. Bidding is significantly less aggressive in this treatment. These findings support the hypothesis that aggressive bidding is motivated in part by features of the protocol for incentivizing subjects that are not essential to the auction environment.