Expectations in first-price auctions

Oliver Kirchkamp and Philipp Reiß

No 609, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: Bids in private value first price auctions consistently deviate from risk neutral symmetric equilibrium bids. It is difficult to explain this deviation with risk aversion. We propose and test two other explanations: (1) Bidders do not form correct expectations. (2) Bidders do not play a best reply against their expectations. We present a novel experimental setup which allows to observe bids and expectations separately. We extensively test the internal validity of this setup. We find that off equilibrium expectations explain, if at all, underbidding. Off equilibrium bids do not seem to be due to wrong expectations but due to deviations from a best reply

Keywords: Experiments; Auction; Expectations. (search for similar items in EconPapers)
JEL-codes: C92 D44 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-exp, nep-fmk and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0609

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