The Common-Probability Auction Puzzle

M. Kathleen Ngangoue and Andrew Schotter

American Economic Review, 2023, vol. 113, issue 6, 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.

JEL-codes: C70 C90 D44 D81 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1257/aer.20191927

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