Bidding in Common Value Auctions: How the Commercial Construction Industry Corrects for the Winner's Curse

Douglas Dyer and John Kagel ()

No 20, Framed Field Experiments from The Field Experiments Website

Abstract: Experienced construction industry executives suffer from a winner's curse in laboratory common- value auction markets. (Dyer et al. 1989). This paper identifies essential differences between field environments and the economic theory underlying the laboratory markets that account for the executives' success in the field and a winner's curse in the lab. These are (1) industry-specific mechanisms which enable contractors to escape the winner's curse even when they bid too low, (2) learned, industry-specific evaluative processes which enable experienced contractors to avoid the winner's curse in the first place, and (3) important private value elements that underlie bidding. Also identified are a number of industry-specific bidding characteristics whose evoluation can be explained using modern auction theory. Lessons are drawn regarding the use of experimental methods in economics.

Keywords: Auctions; construction industry; winner's curse; field data; experiments (search for similar items in EconPapers)
Date: 1996
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