Second-Price Common Value Auctions with Uncertainty, Private and Public Information: Experimental Evidence

33 Pages Posted: 2 Feb 2015

See all articles by Isabelle Brocas

Isabelle Brocas

University of Southern California - Department of Economics

Juan D. Carrillo

University of Southern California - Department of Economics; Centre for Economic Policy Research (CEPR)

Manuel Castro

University of Southern California

Date Written: February 2015

Abstract

We conduct a laboratory experiment of second-price sealed bid auctions of a common value good with two bidders. Bidders face three different types of information: common uncertainty (unknown information), private information (known by one bidder) and public information (known by both bidders), and auctions differ on the relative importance of these three types of information. We find that subjects differentiate insufficiently between private and public information and deviate from the theoretical predictions with respect to all three types of information. There is under-reaction to both private and public information and systematic overbidding in all auctions above and beyond the standard winner's curse. The Cursed Equilibrium and Level-k models successfully account for some features of the data but others remain unexplained.

Keywords: cursed equilibrium, Laboratory experiments, level-k, second price common value auctions, winner's curse

JEL Classification: C92, D44, D82

Suggested Citation

Brocas, Isabelle and Carrillo, Juan D. and Castro, Manuel, Second-Price Common Value Auctions with Uncertainty, Private and Public Information: Experimental Evidence (February 2015). CEPR Discussion Paper No. DP10377, Available at SSRN: https://ssrn.com/abstract=2559318

Isabelle Brocas (Contact Author)

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave
Los Angeles, CA 90089
United States
213-740-8842 (Phone)
213-740-8543 (Fax)

HOME PAGE: http://www-rcf.usc.edu/~brocas/

Juan D. Carrillo

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave.
Los Angeles, CA 90089
United States
213-740-3526 (Phone)
213-740-8543 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Manuel Castro

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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