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

Douglas Dyer and John Kagel
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Douglas Dyer: Dyerwolf Consulting, Crystal Beach, Texas 77650

Management Science, 1996, vol. 42, issue 10, 1463-1475

Abstract: Experienced construction industry executives suffer from a winner's curse in laboratory common value auction markets (Dyer et al. [Dyer, D., J. H. Kagel, D. Levin. 1989. A comparison of naive and experienced bidders in common value offer auctions: Laboratory analysis. Econom. J. 99 108--115.]). 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 evolution 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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Citations: View citations in EconPapers (29)

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Working Paper: Bidding in common value auctions: How the commercial construction industry corrects for the winner's curse (1996)
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