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A New Variant of the Winner's Curse in a Coasian Contracting Game

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  • Glen Archibald
  • Nathaniel Wilcox

Abstract

We examine behavior in a Coasian contracting game with incomplete information. Experimental subjects propose contracts, while automaton property right holders or “robot” players with uncertain preferences respond to those proposals. The most common pattern of proposals observed in these games results in too many agreements and, in some games, payoffs that are stochastically dominated by those resulting from rational proposals (which imply fewer agreements). In this sense, we observe a “winner's curse” similar to that observed in bidding games under incomplete information, such as the “common value auction” (Kagel, J.H. and Levin, D. (1986) American Economic Review. 76, 894–920) and the “takeover game” (Samuelson, W. and Bazerman, M.H. (1985) In Research in Experimental Economics, Vol. 3. JAI Press, Greenwich, pp. 105–137; Ball, S.B., Bazerman, M.H., and Carroll, J.S. (1990) Organizational Behavior and Human Decision Processes. 48, 1–22; Holt, C. and Sherman, R. (1994) American Economic Review. 84, 642–652). While the “naïve model” of behavior nicely predicts the winner's curse in those previous bidding games, it does not do so here. Instead, an alternative model we call the “guarantor model” explains the anomalous behavior best. Hence, we suggest this is a new variant of the winner's curse. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Glen Archibald & Nathaniel Wilcox, 2002. "A New Variant of the Winner's Curse in a Coasian Contracting Game," Experimental Economics, Springer;Economic Science Association, vol. 5(2), pages 155-172, October.
  • Handle: RePEc:kap:expeco:v:5:y:2002:i:2:p:155-172
    DOI: 10.1023/A:1020369305677
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