Out-Of-Equilibrium Bids in First-Price Auctions: Wrong Expectations or Wrong Bids

Deviations from risk-neutral equilibrium bids in auctions can be related to inconsistent expectations with correct best replies or correct expectations but deviant best replies (e. g. because of risk aversion, regret, quantal-response mistakes). To distinguish between these two explanations, we use...

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Bibliographic Details
Published in:The Economic journal (London) 2011-12, Vol.121 (557), p.1361-1397
Main Authors: Kirchkamp, Oliver, Reiß, J. Philipp
Format: Article
Language:English
Subjects:
Asymmetric information
Auctions
Bidding
Bids
Confidence interval
Deviation
Economic equilibrium
Economic expectations
Equilibrium
Expectation
Expectations
Experimentation
Game theory
Nash equilibrium
P values
Reasoning
Risk aversion
Studies
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Summary:Deviations from risk-neutral equilibrium bids in auctions can be related to inconsistent expectations with correct best replies or correct expectations but deviant best replies (e. g. because of risk aversion, regret, quantal-response mistakes). To distinguish between these two explanations, we use a novel experimental procedure and study expectations together with best replies in symmetric and asymmetric auctions. We extensively test the internal validity of this setup. We find that deviations from equilibrium bids do not seem to be because of to wrong expectations but because of deviations from a risk-neutral best reply.
ISSN:0013-0133
1468-0297
DOI:10.1111/j.1468-0297.2011.02455.x