IDEAS home Printed from https://ideas.repec.org/p/cfi/fseres/cf567.html
   My bibliography  Save this paper

The Effect of Framing in Sealed-Bid Auctions: Theory and Experiments

Author

Listed:
  • Yutaka Kayaba

    (Department of Economics, University of Tokyo)

  • Jun Maekawa

    (Department of Economics, Osaka University of Economics and Law)

  • Hitoshi Matsushima

    (Department of Economics, University of Tokyo)

Abstract

We investigate strategic games with imperfect information, such as sealed-bid auctions, wherein players are not good at hypothetical thinking and are therefore unable to select even dominant strategies unless devices to guide them are put in place. We propose a measure to encourage such bounded-rational players to engage in hypothetical thinking. We consider a frame as a multi-stage game format with imperfect information within a range consistent with an inherent strategic game. We showed that a well-specified frame has a significant effect on the promotion of hypothetical thinking. By comparing the second-price auction as a non-frame format and the ascending proxy auctions as framed formats, we theoretically demonstrate that framing can eliminate overbidding and encourage bidders to act more sincerely. These theoretical findings were confirmed by both online and laboratory experimental results.

Suggested Citation

  • Yutaka Kayaba & Jun Maekawa & Hitoshi Matsushima, 2023. "The Effect of Framing in Sealed-Bid Auctions: Theory and Experiments," CARF F-Series CARF-F-567, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf567
    as

    Download full text from publisher

    File URL: https://www.carf.e.u-tokyo.ac.jp/wp/wp-content/uploads/2023/08/F567.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    2. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December.
    3. Friedman, Eric J., 2002. "Strategic properties of heterogeneous serial cost sharing," Mathematical Social Sciences, Elsevier, vol. 44(2), pages 145-154, November.
    4. Ignacio Esponda, 2008. "Behavioral Equilibrium in Economies with Adverse Selection," American Economic Review, American Economic Association, vol. 98(4), pages 1269-1291, September.
    5. Glazer, Jacob & Rubinstein, Ariel, 1996. "An Extensive Game as a Guide for Solving a Normal Game," Journal of Economic Theory, Elsevier, vol. 70(1), pages 32-42, July.
    6. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
    7. Ignacio Esponda Jr. & Emanuel Vespa Jr., 2014. "Hypothetical Thinking and Information Extraction in the Laboratory," American Economic Journal: Microeconomics, American Economic Association, vol. 6(4), pages 180-202, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shengwu Li, 2017. "Obviously Strategy-Proof Mechanisms," American Economic Review, American Economic Association, vol. 107(11), pages 3257-3287, November.
    2. Hitoshi Matsushima, 2017. "Framing Game Theory," CARF F-Series CARF-F-425, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Breitmoser, Yves & Schweighofer-Kodritsch, Sebastian, 2019. "Obviousness around the clock," Discussion Papers, Research Unit: Market Behavior SP II 2019-203, WZB Berlin Social Science Center.
    4. Dan Levin & James Peck & Asen Ivanov, 2016. "Separating Bayesian Updating from Non-Probabilistic Reasoning: An Experimental Investigation," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 39-60, May.
    5. Shani Cohen & Shengwu Li, 2022. "Sequential Cursed Equilibrium," Papers 2212.06025, arXiv.org, revised Aug 2023.
    6. Mira Frick & Ryota Iijima & Yuhta Ishii, 2018. "Dispersed Behavior and Perceptions in Assortative Societies," Cowles Foundation Discussion Papers 2128, Cowles Foundation for Research in Economics, Yale University.
    7. Mira Frick & Ryota Iijima & Yuhta Ishii, 2018. "Dispersed Behavior and Perceptions in Assortative Societies," Cowles Foundation Discussion Papers 2128R3, Cowles Foundation for Research in Economics, Yale University, revised Jun 2022.
    8. Koch, Christian & Penczynski, Stefan P., 2018. "The winner's curse: Conditional reasoning and belief formation," Journal of Economic Theory, Elsevier, vol. 174(C), pages 57-102.
    9. Esponda, Ignacio & Vespa, Emanuel, 2023. "Contingent Thinking and the Sure-Thing Principle: Revisiting Classic Anomalies in the Laboratory#," University of California at San Diego, Economics Working Paper Series qt32j4d5z2, Department of Economics, UC San Diego.
    10. Yves Breitmoser & Sebastian Schweighofer-Kodritsch, 2022. "Obviousness around the clock," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 483-513, April.
    11. Dan Levin & James Peck & Asen Ivanov, 2016. "Separating Bayesian Updating from Non-Probabilistic Reasoning: An Experimental Investigation," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 39-60, May.
    12. Ignacio Esponda Jr. & Emanuel Vespa Jr., 2014. "Hypothetical Thinking and Information Extraction in the Laboratory," American Economic Journal: Microeconomics, American Economic Association, vol. 6(4), pages 180-202, November.
    13. Ignacio Esponda & Demian Pouzo, 2017. "Conditional Retrospective Voting in Large Elections," American Economic Journal: Microeconomics, American Economic Association, vol. 9(2), pages 54-75, May.
    14. Evan Piermont, 2021. "Hypothetical Expected Utility," Papers 2106.15979, arXiv.org, revised Jul 2021.
    15. Philippe Jehiel, 2022. "Analogy-Based Expectation Equilibrium and Related Concepts:Theory, Applications, and Beyond," Working Papers halshs-03735680, HAL.
    16. Moser, Johannes, 2018. "Hypothetical thinking and the winner's curse: An experimental investigation," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181506, Verein für Socialpolitik / German Economic Association.
    17. Breitmoser, Yves, 2019. "Knowing me, imagining you: Projection and overbidding in auctions," Games and Economic Behavior, Elsevier, vol. 113(C), pages 423-447.
    18. Miettinen, Topi, 2008. "Analogy-based Expectations and the Partially Cursed Equilibrium," SSE/EFI Working Paper Series in Economics and Finance 708, Stockholm School of Economics, revised 12 Dec 2008.
    19. Marek Pycia & Peter Troyan, 2023. "A Theory of Simplicity in Games and Mechanism Design," Econometrica, Econometric Society, vol. 91(4), pages 1495-1526, July.
    20. David Ettinger & Philippe Jehiel, 2021. "An experiment on deception, reputation and trust," Experimental Economics, Springer;Economic Science Association, vol. 24(3), pages 821-853, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf567. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/catokjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.