Reservation values and regret in laboratory first price auctions: Context and bidding behavior

Elizabeth Watson and Theodore Turocy
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Elizabeth Watson: Trinity University

No 11-14, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: Recent papers 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 which are not essential to the auction environment.

Keywords: Auctions; regret; experiments (search for similar items in EconPapers)
JEL-codes: C90 C91 D44 (search for similar items in EconPapers)
Date: 2011-08-01
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Related works:
Journal Article: Reservation Values and Regret in Laboratory First‐Price Auctions: Context and Bidding Behavior (2012)
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