Theodore L.
Turocy and Elizabeth
Watson
Department of Economics
Texas A&M University
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We show that bidding behavior in laboratory first-price private-values auctions is sensitive to the way the outcomes of the auction are presented. Our design makes salient the price-probability tradeoff bidders face in formulating their bids. We motivate reservation values in the auction as the price at which a bidder will purchase a close substitute outside the auction market, in the event he does not win the auction. Each subject therefore earns his total consumer surplus each period. We find seller revenue in auctions using this frame to be significantly lower than those which have been consistently reported in the literature. Concavity is consistent with risk aversion in one treatment but risk-loving behavior in the other, we conclude that concavity is a boundedly-rational response to incentives rather than indicative of risk preference.
Available in: [pdf].
Full subject-level data for the sessions reported in the paper are available in [.csv format].
Screenshots of the subject instructions are available in ZIP files: [RV frame] [OP frame, sealed-bid]
The RV frame instructions and data are identical to cohorts labeled a in "Framing the First-Price Auction."