Cursed Equilibrium Revisited

Eirik N. Christensen
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Eirik N. Christensen: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway

No 09/08, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: Empirical as well as experimental evidence strongly suggests that bidders in common value auctions typically do not conform to the requirements of perfect rationality. Eyster and Rabin (2005) develop a theory and an equilibrium concept - x-cursed equilibrium - for bounded rational bidding in common value auctions (among other situations), and also present some experimental evidence supporting the theory. This paper comments on these findings of an experiment conducted at the University of Bergen. In the experiment, participants often demonstrate behaviour that is beyond the bounds set by the x-cursed equilibrium theory, and I present an alternative theory that better explains the experimental findings.

Keywords: common value auctions; winner's curse; bounded rationality; experiments. (search for similar items in EconPapers)
JEL-codes: C91 D44 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-08-04
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