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Could we overcome the Winner's Curse by (behavioral) auction design?

J. Philipp Reiss and Dan Levin ()

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: The Winner s Curse (WC) is a non-equilibrium behavior in common-value auctions involving systematic and persistent overbidding that often results in signi ficant losses. It is one of the most robust fi ndings in laboratory experiments. We developed an auction mechanism with a payment rule that internalizes the adverse selection by inducing a simple strategy, sincere bidding, as no-regret equilibrium. Other less efficient payment rules, that use more than the minimal information needed, may also induce sincere bidding as equilibrium. However, given concerns with the WC, we study whether such less minimal rules can help bidders find their way to equilibrium bidding. Our main experimental fi ndings are that the no-regret minimal payment rule results in more WC than the English auction. Yet, a less efficient but more intuitive payment rule addresses overbidding better than the minimal payment rule and, remarkably for a static, sealed-bid design, matches the performance of the English auction.

JEL-codes: C92 D44 C72 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-exp
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