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Reservation Values and Regret in Laboratory First-Price Auctions: Context and Bidding Behavior

Theodore Turocy () and Elizabeth Watson ()
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Elizabeth Watson: Department of Economics, Trinity University, San Antonio, TX 78212, USA Suite 121, Tucson, AZ 85718, USA

Southern Economic Journal, 2012, vol. 78, issue 4, 1163-1180

Abstract: 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.

JEL-codes: D44 C90 C91 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Reservation values and regret in laboratory first price auctions: Context and bidding behavior (2011) Downloads
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Handle: RePEc:wly:soecon:v:78:4:y:2012:p:1163-1180