Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse

Glenn Harrison and John List

No 13072, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There has been a dramatic increase in the use of experimental methods in the past two decades. An oft-cited reason for this rise in popularity is that experimental methods provide the necessary control to estimate treatment effects in isolation of other confounding factors. We examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain. Using common value auction theory as our guide, we identify naturally occurring settings in which one can test the theory. In our treatments the subjects are not picked at random, as in lab experiments with student subjects, but are deliberately identified by their trading roles in the natural field setting. We find that experienced agents bidding in familiar roles do not fall prey to the winner's curse. Yet, when experienced agents are observed bidding in an unfamiliar role, we find that they frequently fall prey to the winner's curse. We conclude that the theory predicts field behavior well when one is able to identify naturally occurring field counterparts to the key theoretical conditions.

JEL-codes: C90 C91 C93 D02 D44 L0 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-exp
Note: IO PE
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Citations: View citations in EconPapers (34)

Published as GlennW. Harrison & JohnA. List, 2008. "Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse," Economic Journal, Royal Economic Society, vol. 118(528), pages 822-843, 04.

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Journal Article: Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse (2008)
Journal Article: Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse (2008)
Working Paper: Naturally occurring markets and exogenous laboratory experiments: A case study of the winner's curse (2008)
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