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Sealed Bid Auctions with Ambiguity: An Experimental Study

Author

Listed:
  • Yan Chen
  • Peter Katuscak
  • Emre Ozdenoren
Abstract
This study presents a laboratory experiment of the first and second price sealed bid auctions with independent private values, where the distribution of bidder valuations is unknown. In our experimental setting, in first price auctions, bids are lower with the presence of ambiguity. This result is consistent with ambiguity loving in a model which allows for different ambiguity attitudes. Alternative interpretations of this result, such as the hostile nature hypothesis proposed by psychologists, are discussed in the paper. Another departure from previous experimental studies is the use of subjects as auctioneers. We find that compared to zero reserve prices the presence of auctioneers significantly reduces revenue in first price auctions. It also significantly reduces bidder earnings and efficiency. Without knowledge of the distribution of bidder valuations and with auctioneers, the first and second price auctions generate the same amount of revenue.

Suggested Citation

  • Yan Chen & Peter Katuscak & Emre Ozdenoren, 2005. "Sealed Bid Auctions with Ambiguity: An Experimental Study," CERGE-EI Working Papers wp269, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp269
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    References listed on IDEAS

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    Cited by:

    1. Jamison, Julian & Karlan, Dean S., 2009. "When curiosity kills the profits: An experimental examination," Games and Economic Behavior, Elsevier, vol. 66(2), pages 830-840, July.
    2. Andrew M. Davis & Elena Katok & Anthony M. Kwasnica, 2011. "Do Auctioneers Pick Optimal Reserve Prices?," Management Science, INFORMS, vol. 57(1), pages 177-192, January.

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    More about this item

    Keywords

    Sealed bid auctions; ambiguity; experiment.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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